40x Leverage, Instant Liquidation! US Retail Investors Flood into Crypto Perpetual Futures, Consumer Groups Slam 'Most Dangerous Product in Crypto'

According to the latest foreign media reports, cryptocurrency perpetual futures contracts, recently approved for trading in the United States in May, are attracting a massive influx of retail investors. However, consumer rights advocacy groups have labeled the product the 'most dangerous in the crypto space,' warning that its lack of crisis buffers could lead to significant losses for small investors and exacerbate market volatility.

The Financial Times reports that, unlike traditional futures contracts, perpetual futures have no expiration date and do not involve physical delivery of the underlying asset. Traders simply speculate on the price movement of the asset, either going long or short. The product allows large bets with minimal cash through high leverage, with some offshore platforms offering up to 40x leverage.

Prior to their approval in the U.S. market, crypto perpetual futures were primarily operated by offshore exchanges based in Seychelles and the Cayman Islands.

This year, several U.S.-based firms, including Kalshi and Coinbase, were granted approval to offer the product for the first time. The Chair of the Commodity Futures Trading Commission (CFTC) called this a 'watershed moment' for U.S. capital markets.

Perpetual futures have quickly gained popularity in the U.S. Kalshi said the product reached $1 billion in trading volume in less than a week, making it the fastest-growing product in the company's history.

Data shows that trading volume for crypto perpetual futures contracts reached approximately $90 trillion last year, far exceeding the roughly $30 trillion in 2023.

Analysts suggest that strong demand for oil perpetual futures on the Hyperliquid platform since the outbreak of the U.S.-Iran conflict has almost certainly influenced the CFTC's decision to allow perpetual futures trading in the U.S.

Meanwhile, the regulatory classification of the product has sparked controversy. In May, the CFTC classified crypto perpetuals as futures rather than swaps, the latter being subject to stricter regulation. Futures contracts are subject to relatively lighter oversight and enjoy more favorable tax treatment and looser margin requirements. The Chicago Mercantile Exchange Group (CME) sued the CFTC last month, accusing the CFTC Chair of completely dismantling post-2008 financial crisis regulations. Consumer advocacy groups have criticized the CFTC for 'completely ignoring the risks posed by the approved product.'

Unlike traditional markets, losing positions in perpetual futures are immediately liquidated when they fall below a certain threshold, sometimes with almost no warning. In extreme cases, even profitable positions may be 'auto-deleveraged' to prevent exchange insolvency. With no margin call buffer, sudden position closures can dump more assets into a falling market, further depressing prices and triggering additional liquidations.

Some analysts note that while retail demand for short-term risk exposure is strong, investors are often unable to answer how much they could potentially lose on perpetual futures.

Despite the risks, perpetual futures are popular for providing continuous price signals. During traditional market closures, their trading volume is sufficient to support price discovery.

However, industry insiders warn that the design of perpetual futures 'has no buffer in a crisis,' and the higher their market share, the greater the potential risk.