The bitcoin price has seen a significant 14% increase this month, with expectations that it may soon surpass $80,000. However, the perpetual futures market is telling a different story, with funding rates currently below zero. 10x Research's Founder, Markus Thielen, attributes this divergence to hedging activity by institutions, rather than a lack of confidence in bitcoin's recent performance.
The negative funding rate is a result of structural changes in the market, driven by the increasing participation of sophisticated players. Perpetual futures contracts track bitcoin's price without expiring and are subject to periodic fees, known as funding rates, to keep prices aligned with spot prices.
When futures prices exceed spot prices, longs pay shorts, resulting in a positive funding rate. Conversely, when futures trade below spot, shorts pay longs, and the rate becomes negative. The funding-rate mechanism serves as a real-time gauge of market sentiment.
Recently, funding rates have been consistently negative, indicating that shorts are dominating the market, and perpetual futures are trading at a discount to spot price. According to 10x Research, bitcoin's 30-day average funding rate is negative 5%, compared to the historical norm of positive 8%.
Thielen identifies three sources of short pressure in the futures market: hedge fund redemptions, institutional trades, and bitcoin miners pivoting to artificial intelligence. These factors contribute to the negative funding rate, which is a result of risk management strategies rather than a bearish outlook on bitcoin.