The Rise of Perps: How High Leverage Trading is Shaping the Crypto Market

Coinbase plans to launch perpetual futures trading in the US following CFTC rules.

Now these derivatives let traders bet on crypto prices with no expiry, 24/7 access and high leverage as regulatory pressure eases and as risk appetite returns, exchanges are rushing to offer advanced products.

Now this week, the US Senate will vote on The Genius Act on Tuesday aiming to establish a regulatory framework for stablecoins and if passed, it moves to the House where the Stable Act also addresses stablecoin regulation but with differences on state versus federal oversight and foreign issuers.

Well joining me as we dive into a busy week is Adam Morgan McCarthy, head of US research atICO.

Provider of crypto market data, analytics and indices.

Well, good morning, Adam.

Thank you so much for joining me.

Good morning, Remy.

Thanks so much for having me.

Well, first and foremost, explain to us what perps are and the use case here.

Yes, so perps are quite unique to crypto.

They kind of have their origins in the late 80s, early 90s from research from I think it was.

Professor at Yale, but they already only got uptake in crypto in 10 or 12 years ago through Arthur Hayes and his exchange Bitmax.

Essentially they're like spot-based futures products that trade in perpetuity with no expiration date, no delivery date.

So it's perfect in the early days of crypto when people wanted to trade Bitcoin and get exposure.

But they didn't want to have it on their balance sheet or they didn't want to have to deal with, you know, counterparty risk, so it was all handled kind of it was easier to have it just in cash and it can trade in perpetuity.

It also gives bigger leverage opportunities so you can get 100 contracts and things like that.

So really it's what supercharged crypto over the last 1510, 1012 years and.

It's it's the majority of the market day to day volumes.

It's bigger than the spot.

It's bigger than options, so it's the heart and soul of crypto really.

So for people who may not be as familiar with how perps work, can you give us an example and break it down for us?

Yeah, so if I want to go long on a perps contract on Bitcoin, I'll pay depending on.

Whether there's a lot of longs in the market or shorts the mark, I'll pay a funding rate to maintain that position or I'll get paid a funding rate.

So this is just basically the mechanism that makes sure that these contracts track the underlying price accurately.

So if there's a lot of shorts in the market, the price the funding rate will be tilted negative and the shorts will pay the longs to keep their position open and vice versa.

And that's essentially how it works.

You can trade them across decentralized venues and centralized venues and get massive exposure on leverage on Hi max on Hyperliquid, all these places.

So they work like a futures contract with a few unique twists and you know, more leverage as well.

So that leads me to my next question, and that is regarding demand for PERP.

So what do you expect to see when it comes to adoption?

So I think you know what we've seen some exchanges do $18 to $20 billion in volume a day for Bitcoin purpose already.

So if you can imagine that volume coming onshore in the US, you know, a lot of crypto volume is already during US hours, but most of it happens offshore.

So if you can.

Get kind of regulated purposes in the US, it could really change things there and there's probably quite a lot of appetite you have to imagine.

I mean, even some decentralized venues that don't have the best kind of efficiencies or systems, they still do like 5 to 6 billion a day in volume.

So if that's the case for the kind of inefficient things, you've got to imagine if these come on shore with regulated venues, you know, the likes of Coinbases, Geminis, and Krakeens, then you'd have to imagine that there'd be a lot of demand.

And when we take a step back, we're here at the New York Stock Exchange, and we keep a close eye not just on the US equity market, but also other commodities as well.

And when we take a step back and look at year to date performance, of course some of the equity averages are coming back, but when we look at Bitcoin or gold, we know that they're outperforming compared to other assets.

So for people who want exposure to both Bitcoin as well as gold, what are some of the products out there?

And what do you think of what's available?

Yes, I think Paul Tudor Jones was talking last week about getting kind of combined exposure to the two and also getting equities in there.

There's some products already in the in the US, I think, return stack is looking to offer something like that.

Cantor Fitzgerald talked recently about setting up a fund that would buy Bitcoin and gold, but you know we've already got an index that tracks both in Europe called the bold index, so you get exposure to Bitcoin and gold with a unique kind of waiting system based on the inverse volatility of the Bitcoin.

So as Bitcoin gets less volatile, it's waiting, it goes higher in the in the index.

But this, um, this is one way that we, we kind of track it with that index.

It's already got an ETP on it in Europe, um, 21 shares and Bree's products, bold ETP, um, you know, 20/20 million I think in AOM and that.

So that's one way of getting that kind of combined.

Exposure and it kind of gets the benefit of Bitcoin during those times of volatility is going down and you benefit from gold's lower volatility by evening things out.

So it's kind of volatility diversification in that way and it's quite a unique product that we have and that we're seeing an uptick in demand for that thing in Europe but also here in the US recently recent fallings.

And finally, we are almost at the halfway mark for 2025 and coming into this year, there are a lot of expectations about regulation regarding crypto and digital assets here in the US.

So as we get ready to kick off the second half of 2025, what's on your radar and what are your expectations beyond just the Genius Act here?

Yeah, I think the Genius Act is the main thing it's hard to get by.

You've mentioned at the top of the segment there, but That's going to be huge, and I think stablecoins are going to, I see them maybe moving more away from crypto and not being as driven by things like Bitcoins price and things like that because the uptick in demand and usage in terms of stablecoin payments we saw with Coinbase last week and some linkages with Shopify and other things where you can now start using things like Circles USDC, which had a really successful IPO here recently.

Um, and those things are bigger drivers than the crypto market.

So you know, if you look back at circles on chain analytics and things which we've done recently, things like it's idiosyncratic stuff like.

The SDP Silicon Valley bank collapse in 2013 had a much bigger impact on it than FTX or than the Tera Luna collapse because it's like the crypto market poses that risk for those stablecoins.

So I think once once the once the regulation clears up, they'll actually really get the supercharge and use those kind of things like the for payments and get integrations with fintech platforms, things like that.

So I'll be looking at that once that comes through.

Um, more broadly looking at the other ETF applications that are out there, I think we're going to see some more basket products.

We've already got Bitcoin and Ethereum products.

I'd be shocked if we don't have sort of, you know, a 4 or 5 basket product by the end of the year.

I think Grace Gill have already kind of applied to convert their digital large cap funds.

Um, we're seeing demand for that as well, the issuer side, and yeah, I think that's kind of my two main things.

The regulation for stablecoins let them do what they're meant to do, you know, let them be used for payments and see if they can challenge those kind of incumbents in the visas and Mastercards and more exotic options on the index ETF side.

OK, Adam, well, we will have to leave it there, but thank you so much for joining me and thank you so much for sharing your insights.

Thanks so much for having me.

Thank you.