What to Know

  • CME Group Chairman and CEO Terry Duffy says perpetual futures approved in the U.S. may create tax uncertainty for market participants.
  • The central dispute is whether perpetual futures should be classified as futures or swaps under U.S. law.
  • Duffy argues that recurring funding payments between long and short positions make perpetual futures resemble swaps.
  • If treated as futures, some institutional traders may seek Section 1256 tax treatment, where gains and losses are generally treated as 60% long-term and 40% short-term capital gains.
  • If treated as swaps, the contracts may instead fall under ordinary taxation.
  • The IRS has not issued guidance specifically addressing the tax treatment of perpetual futures.
  • CME is challenging the CFTC over the regulator’s approval of perpetual futures contracts in the U.S.
  • Legal experts say courts may play a larger role after the Supreme Court’s 2024 Loper Bright decision ended Chevron deference.
  • A federal judge may initially focus on whether the CFTC followed Administrative Procedure Act requirements rather than immediately resolving the swaps-versus-futures question.
  • Even a court decision on regulatory classification may not fully settle how the IRS expects traders to report these products.

Crypto Perps Move Into a Tax Gray Zone

Perpetual futures are moving deeper into the U.S. market structure, but a key question remains unresolved: how should traders, funds and large institutions report these products for tax purposes if their legal identity is still contested? CME Group Chairman and CEO Terry Duffy has warned that the approval of perpetual futures contracts in the U.S. could expose participants to unexpected tax and regulatory uncertainty if the products are ultimately determined to be swaps rather than futures.

The issue matters because perpetual futures are not simply another version of standard futures contracts. Traditional futures expire at a set time, while perpetual contracts do not expire. Instead, they use funding payments exchanged between traders holding long and short positions. Those payments are designed to keep the derivative’s market price aligned with the price of the underlying asset. In Duffy’s view, that funding-rate mechanism creates a legal problem because payment exchanges between two parties can fit within the definition of a swap.

Duffy has framed the matter as a consequence that has not received enough attention. His concern is that U.S. participants may already be facing ambiguity from a tax perspective while trading products that regulators have allowed under a futures framework. If courts or tax authorities later determine that these instruments should have been handled as swaps, traders who filed returns under a futures view may need to reassess how their gains and losses were reported.

Why the Futures Versus Swaps Label Matters

The classification question is not a technicality. In U.S. tax treatment, the difference between futures and swaps can materially affect how gains and losses are reported. Duffy has pointed to Section 1256 of the U.S. tax code, under which certain futures contracts may receive a blended treatment where gains and losses are generally treated as 60% long-term and 40% short-term capital gains. That structure can be meaningful for institutions, professional traders and active market participants managing large books of derivative exposure.

If perpetual futures are instead treated as swaps, Duffy says they would be taxed under ordinary taxation rather than the futures treatment market participants may be assuming. The uncertainty is sharpened by the fact that perpetual futures are newer financial instruments in the regulated U.S. landscape, and the IRS has not issued guidance specifically addressing their tax treatment. That leaves traders facing a practical dilemma: follow the CFTC’s futures classification, take a more conservative tax position, or seek specific tax advice while the issue remains unsettled.

Duffy’s warning is especially relevant for large public companies, trading firms and institutions that hedge regularly and maintain detailed compliance processes. If a company files government tax returns treating perpetual futures as Section 1256 contracts, and a later ruling indicates the products should have been treated as swaps, the resulting questions could be costly, complex and reputationally sensitive. The concern is not merely whether a trade was profitable, but whether a reporting framework later looks flawed in hindsight.

Funding Payments Sit at the Center of the Debate

The defining feature of perpetual futures is also the feature at the heart of the legal debate. Because these contracts do not expire, they need a mechanism to keep prices from drifting too far away from the underlying market. Funding payments serve that purpose. Depending on market conditions, traders on one side of the contract periodically pay traders on the other side. That mechanism is common across crypto derivatives markets and has become a major reason perpetual futures are popular among active traders.

Duffy argues that when two parties exchange payments with each other, the arrangement looks like a swap. His position is that the periodic funding payments used by perpetual contracts bring them closer to the statutory definition of swaps than to the traditional futures model. That interpretation, if accepted, could reshape how U.S. regulators and tax authorities approach crypto derivatives that have become central to digital asset trading.

Legal specialists, however, see the problem as more nuanced. Some chart watchers and legal observers describe perpetual futures as products that may look like swaps in textual structure while functioning economically like futures. That creates what lawyers often call a substance-over-form problem. In other words, courts may need to decide whether the legal form of recurring payments should control, or whether the economic behavior of the product should carry more weight.

The statutory definition of swaps is broad, which adds to the uncertainty. Legal experts have noted that the language can be read expansively enough to cover a wide range of financial arrangements. That breadth creates room for disagreement when a newer instrument, such as a crypto perpetual future, does not fit cleanly into legacy categories. Perpetual futures combine features that feel familiar to derivatives traders with mechanics that raise fresh legal and tax questions.

The court process could also be shaped by the Supreme Court’s 2024 Loper Bright decision, which eliminated the longstanding Chevron doctrine. Under the prior framework, courts often gave significant deference to federal agencies when interpreting ambiguous statutes. With that deference reduced, judges may now play a more active role in deciding whether existing derivatives laws apply to novel crypto products in the way agencies claim.

That shift does not guarantee a quick or definitive answer. Market participants expect a potentially drawn-out process, with litigation focused not only on the meaning of futures and swaps but also on whether regulators followed the required decision-making procedures. Rather than immediately resolving the full classification question, a federal judge may first examine whether the CFTC reasonably considered public comments, exercised independent judgment and sufficiently explained its decision before approving perpetual futures contracts.

The IRS Could Still Take Its Own View

Even if litigation eventually clarifies whether perpetual contracts are swaps or futures for regulatory purposes, tax treatment may still remain unsettled until the IRS speaks directly. The IRS is not required to adopt the CFTC’s classification of financial instruments. Historically, tax authorities may often align with commodity and derivatives definitions used by regulators, but that does not mean the IRS must accept every taxpayer position based on CFTC rules.

This creates a layered risk for traders. A CFTC approval may support the view that a product is regulated as a futures contract, but that does not necessarily determine the tax result. For institutions, the gap between regulatory classification and tax classification can create compliance challenges, especially when the product is actively traded and the tax consequences can accumulate across many transactions.

Some legal specialists believe market participants may want to check directly with tax advisers or seek clarity from the IRS about how these products should be reported. Until such guidance exists, firms may need to document their reasoning carefully and weigh whether reliance on futures treatment is appropriate. For high-volume traders, the ambiguity may affect not just accounting systems, but also risk controls, investor disclosures and internal tax governance.

Regulatory Stakes for the Crypto Derivatives Market

The dispute arrives as perpetual futures remain one of the most important products in crypto trading. Their popularity stems from flexibility: traders can maintain exposure without rolling contracts at expiration, while funding payments help anchor the contract to the underlying market. That design has made perps a central instrument for speculation, hedging and liquidity provision across digital asset venues.

In the U.S., however, bringing such products into a regulated environment means fitting them into legal categories that were not designed specifically for modern crypto derivatives. The CFTC’s approval has opened the door to regulated offerings, but CME’s challenge highlights the possibility that approval alone may not settle every downstream consequence. The tax question is particularly sensitive because it affects how market participants report past and future activity.

For crypto firms, exchanges and institutional desks, the case could become an important marker for how U.S. law adapts to digital asset market structure. If courts give more weight to the funding-payment feature, perpetual futures may face a different regulatory and tax trajectory. If courts emphasize economic function and market usage, the futures classification may stand on firmer ground. Either way, the outcome could influence how future crypto derivatives are designed, approved and marketed in the U.S.

What Traders Should Watch Next

The immediate focus is the federal court process involving CME and the CFTC. Market participants will watch whether the judge centers the case on procedure under the Administrative Procedure Act or moves closer to the broader classification question. A ruling focused on procedure could delay a definitive answer on whether perpetual futures are futures or swaps. A ruling that engages more directly with classification could have wider implications for the crypto derivatives market.

Traders should also watch for any IRS guidance that addresses perpetual futures directly. Without that guidance, tax reporting remains an area where participants may face competing interpretations. The fact that a product is approved by a market regulator does not automatically remove uncertainty over how the tax authority will view it. That distinction is likely to become increasingly important as crypto derivatives mature and more traditional institutions enter the market.

For now, Duffy’s warning underscores a broader reality in digital asset finance: product innovation can move faster than legal and tax classification. Perpetual futures may behave like familiar trading instruments to crypto-native participants, but their funding payments, lack of expiration and evolving U.S. approval pathway leave unresolved questions. Until courts, regulators or the IRS provide greater clarity, the hidden tax risk around crypto perps remains a live issue for U.S. traders and institutions.

Frequently Asked Questions (FAQs)

What are perpetual futures?

Perpetual futures are derivative contracts that do not expire. Instead of settling at a fixed expiration date like traditional futures, they use periodic funding payments between long and short positions to help keep the contract price close to the underlying asset price.

Why is CME challenging the CFTC over perpetual futures?

CME is challenging the CFTC over the regulator’s approval of perpetual futures contracts in the U.S. The dispute centers on whether these products should legally be treated as futures or swaps, a classification that could affect regulation and tax treatment.

Why does Terry Duffy say perpetual futures may be swaps?

Duffy argues that the funding-rate mechanism used by perpetual contracts involves recurring payment exchanges between two parties. In his view, that feature may satisfy the legal definition of a swap under U.S. law.

How could tax treatment differ if perps are futures?

If perpetual futures qualify as futures, some institutional traders may seek Section 1256 treatment, where gains and losses are generally treated as 60% long-term and 40% short-term capital gains.

How could tax treatment differ if perps are swaps?

If perpetual futures are treated as swaps, Duffy says they may be taxed under ordinary taxation instead of the blended treatment associated with certain futures contracts. That could create reporting uncertainty for traders who assumed futures treatment.

Has the IRS issued guidance on perpetual futures?

The IRS has not issued guidance specifically addressing the tax treatment of perpetual futures. That absence of direct guidance is one reason market participants may face uncertainty when deciding how to report these products.

What role could the 2024 Loper Bright decision play?

The Supreme Court’s 2024 Loper Bright decision ended Chevron deference, meaning courts now give less deference to federal agencies’ interpretations of ambiguous statutes. Judges may therefore have more influence in deciding how derivatives laws apply to crypto perpetual futures.

Will a court ruling automatically settle the tax issue?

Not necessarily. Even if litigation clarifies whether perpetual contracts are swaps or futures for regulatory purposes, the IRS may still need to provide separate guidance on tax treatment because it is not obligated to adopt the CFTC’s interpretation.

What should institutions monitor now?

Institutions should monitor the federal court case, any CFTC response, and potential IRS guidance. Firms trading or hedging with perpetual futures may also need to review their reporting approach with tax professionals while classification remains unresolved.

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