Crypto is now teamed up with U.S. government in two legal battles over perps

In a surprising twist, the cryptocurrency industry has found itself aligned with its regulator in defending single-stock perpetual futures against legal challenges from traditional securities firms. This alliance comes as crypto companies including Coinbase, Kraken, and Kalshi filed a legal brief supporting the Commodity Futures Trading Commission's position that these products are futures contracts, not swaps.

The legal battle centers on whether perpetual futures tied to individual equities should be regulated as futures under the CFTC's jurisdiction or as securities-based swaps under the SEC's oversight. Traditional securities firms, represented by the Capital Markets Alliance backed by Citadel Securities and Cboe, have sued to halt trading in these products, arguing they fit the definition of swaps.

Regulatory Dispute

The CFTC has sought to establish a regulatory path for single-stock perpetual futures, similar to its earlier approach with crypto perpetual futures. This move prompted immediate legal action from the traditional securities industry, which claims the agency is overstepping its authority by treating these products as futures rather than swaps.

Crypto Industry Position

The crypto firms argue that stock perpetual futures are actually superior to traditional stock futures and that the Capital Markets Alliance members could offer these better products themselves. Instead, they chose to sue and seek emergency relief to keep these products off the market.

This legal fight mirrors an earlier dispute between the CFTC and CME Group over crypto perpetual futures, where the exchange argued those products should be treated as swaps. In that case, the CFTC maintained jurisdiction but would need to apply different regulatory standards.

Legal Status

A federal judge initially allowed trading to continue in the Capital Markets Alliance case but indicated she believed the group's argument about CFTC overreach has merit. In the CME case, the CFTC has moved to dismiss the lawsuit, but judicial action is still pending.

The crypto industry's intervention in the stock perps case marks their second time aligning with the CFTC in legal battles against traditional financial firms. The outcome of these cases could significantly shape the regulatory landscape for both crypto and traditional financial derivatives in the United States.