Perpetual futures have emerged as a favorite trading option in the crypto market over the past few years, particularly for investors outside the U.S. With the introduction of these contracts into regulated American markets, Wall Street is now contemplating whether they represent a fleeting trend among retail traders or pose a significant challenge to conventional futures.
The initial statistics are certainly noteworthy.
Since launching in June, Kalshi’s perpetual futures achieved trading volumes exceeding $1 billion within just a week, marking the most successful product rollout for the company since its prediction markets. Following this, the exchange has sought regulatory approval to introduce perpetual futures linked to gold and silver, indicating that this product may extend beyond just Bitcoin and other cryptocurrencies.
Perpetual futures, commonly referred to as “perps,” function similarly to traditional futures contracts but lack expiration dates. This means that traders aren’t required to close or transition their position into a new contract on a monthly or quarterly basis. Instead, recurring funding payments help maintain the contract’s price in line with the underlying asset.
This product has effectively become integral to the global cryptocurrency trading landscape. Bank of America estimates the annual trading volume of perpetual futures to be around $90 trillion.
On May 29, the Commodity Futures Trading Commission (CFTC) granted Kalshi approval to offer these contracts. Coinbase (COIN) has also received permission to introduce regulated perpetual futures in the U.S.
However, despite the growing interest, Wall Street’s adoption of perps is not guaranteed.
Sources familiar with the matter report that discussions around perps are increasing, partly due to U.S. regulators allowing markets previously operating offshore to transition onshore. Nevertheless, most major financial institutions are still in the research phase rather than preparing for significant launches. It’s more likely that early adopters will be proprietary trading firms, market makers, and newer clearinghouses.
Unlike large banking institutions, proprietary trading firms invest their own capital, granting them more flexibility to explore new venues, accept operational risks, and withdraw if the financial viability changes. In contrast, large banks face more stringent capital regulations, client commitments, and reputational risks. For them, the potential profits from a nascent market may not warrant the costs associated with developing compliance, clearing, and risk management systems.
This distinction is crucial, as the term “Wall Street” encompasses various groups that operate at different paces. Individual traders and smaller firms typically make the first move, followed by market makers when trade volumes rise. Banks, on the other hand, often prefer to see several years of data, clear regulatory guidelines, and stable infrastructure before dedicating substantial capital.
However, the potential applications of perpetual futures reach beyond mere speculation. They could serve as a tool for traders to mitigate weekend risk. Traditional futures markets typically shut down for part of the weekend, even amid ongoing geopolitical events, elections, and policy announcements. A trader holding options on a Friday may find themselves waiting until Sunday night to hedge against significant market fluctuations.
A robust 24-hour perpetual market could address this issue. Organizations could adjust their positions in real time as events unfold, using weekend prices to project where futures may resume trading on the CME. Insiders have noted that this could render perps valuable for both hedging and price discovery.
“There needs to be demand; otherwise, the capital won’t follow,” one industry insider remarked, suggesting that firms are unlikely to allocate resources until customer engagement proves sufficient.
The primary hurdle lies in liquidity. Although a contract may be available for trading around the clock, institutions may struggle to execute large trades without affecting market prices. Weekend liquidity often remains limited, and collateral management systems may not respond as swiftly as the markets they support.
A regulatory battle is also emerging. A key issue at hand is whether certain perpetual contracts should be classified as futures or swaps. This classification influences margin requirements, registration obligations, and potential liquidity providers. Industry insiders believe these legal considerations will gain more significance as exchanges broaden the scope of perps into commodities, equities, and other conventional markets.
The rivalry is intensifying. CME has contested the CFTC’s classification of Kalshi’s Bitcoin perpetual contracts, urging for alternative regulatory oversight. Similar conflicts may arise as exchanges explore the expansion of perps into equities and other asset classes.
“Much of this is driven by commercial interests, even if some aren’t willing to openly admit it,” another industry veteran stated, suggesting that resistance stems partly from established exchanges aiming to safeguard their existing business models as much as from genuine concerns about market structure.
At present, Wall Street’s stance is more cautious than adversarial. Trading firms perceive a familiar product, regulators notice a market migrating onshore, and exchanges see an opportunity to capture additional trading volume.
That said, the largest banking institutions are unlikely to take the lead. They will wait for clearer regulations, enhanced liquidity, and improved infrastructure before committing.