The price of Bitcoin has surged approximately 14% this month, marking its best monthly performance in a year. Despite this, the perpetual futures market is exhibiting behavior that suggests a bearish outlook. The funding rate, which is typically positive when futures are positioned for a price increase and negative when positioned for a drop, is currently below zero. However, 10x Research's Founder Markus Thielen attributes this divergence to hedging activity by institutions, rather than a lack of confidence in Bitcoin's performance.
Thielen, who predicted a rally to $125,000 in early 2023, suggests that the negative funding rate represents a structural change in the market driven by the increasing participation of sophisticated players. The funding rate matters as it acts as a real-time gauge of market sentiment, with negative rates indicating that shorts are in charge and perpetual futures are trading at a discount to spot price. In recent weeks, funding rates have been consistently negative, with Bitcoin's 30-day average funding rate at negative 5%, compared to the historical norm of positive 8%.
Thielen identifies three sources for the short pressure in the futures market: hedge fund redemptions, institutional trades requiring shorting bitcoin futures as a hedge, and bitcoin miners pivoting to artificial intelligence. These mechanical risk-management trades are not bearish bets, but rather a result of structural changes in the market.