Trump’s Crypto Legacy Is Remaking Traditional Finance
At a recent crypto VC lunch I attended in New York, everyone was asked to go around the table and answer the same question: Has Donald Trump, the first pro-crypto president, been good or bad for the industry?
The responses were divided. Trump ushered in a friendlier regulatory environment. But he has also been one of the bigger personal beneficiaries, which has hurt crypto’s reputation, some attendees said. He reported $1.4 billion in income from crypto through his family businesses last year, more than any U.S. crypto firms earned. Meanwhile the crypto market is in the middle of a severe downturn which is straining crypto firms. They’re responding by cutting jobs or winding down.
Trump’s biggest impact has arguably been allowing pieces of crypto market innovation to take hold in the U.S. and start reshaping traditional finance. Since last year, the Trump administration has quickly legitimized a slew of financial products, including stablecoins, prediction markets and tokenized equities. Many first caught on with small traders in crypto-focused markets but are now starting to look more like serious markets in their own right.
Perpetual futures are the latest example of that transformation. The derivatives contracts grew popular on offshore exchanges like Binance and Hyperliquid as a way to make leveraged bets on crypto prices. The contracts allow traders to make open-ended bets on the price of something going up and down, with borrowed money that can magnify wins and losses.
Until recently, perpetual futures were unavailable to U.S. users through regulated exchanges. But the Commodity Futures Trading Commission approved perpetuals for the first time in May, and Kalshi, Coinbase, and Kraken have all since launched contracts offering bets on crypto prices to U.S. clients. Kalshi and others are hoping they can get permission to use the same structure for a range of other assets, which could allow investors to make similar wagers on the future prices of stocks or commodities like oil and gold.
Proponents of perpetual futures often tout how easy they are for everyday investors to understand compared to traditional futures contracts. For instance, since they don’t have expiration dates, an investor doesn’t need to navigate rolling expiring contracts into new ones, a process that can be costly and confusing.
The reactions from big mainstream financial firms, including ones that focus on large customers as opposed to retail traders, suggest they see a serious competitive threat. The Chicago Mercantile Exchange, the biggest financial derivatives exchange, filed a lawsuit last month against the CFTC over the agency’s approval of perpetual futures, claiming the regulator has not done formal rulemaking and circumvented Congress’ regulatory regime. Terry Duffy, the outgoing CEO of CME, has sounded the alarm that perpetuals are “casinos on exchanges” and attract retail traders who may not understand the risks of leverage.
To be sure, perpetual futures have some drawbacks for small and big traders alike. First, while traders save on costs to roll over contracts, they need to make regular payments to keep their contracts open. Those payments are designed to keep the futures price in line with the current price of the underlying asset, and can fluctuate based on interest rates.
And the perpetual futures structure isn’t a great fit for big firms that want to use them as a hedge. Because they don’t have an expiry date, using them for that purpose is difficult. For instance, a farmer can’t use these contracts to hedge the price they can get when they deliver a crop, and airlines can’t hedge the costs of fuel for specific months. And many financial institutions are used to using bespoke swaps, negotiated privately with banks and tailored to their specific hedging needs.
There’s also the rising fear that speculating in perpetual contracts could skew the prices of the underlying spot markets, creating real-world consequences. That becomes a political issue when the prices of things like food and oil could be impacted. Kalshi’s CEO Tarek Mansour acknowledged this when speaking at a Bloomberg market structure conference in June, saying Kalshi is not launching perpetuals based on food prices for now because of concerns from Congress, particularly among lawmakers on agricultural committees that oversee commodity trading.
“I think when the Ag committee comes and says, ‘look, we’re comfortable with the natural cycle of [contracts] expiring at the end of Friday and not having to look at the markets and worry about food prices during the weekend,’ I think it’s a sensible policy argument. It makes sense,” he said.
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