The recent 14% monthly surge in bitcoin's price, its best performance in a year, has sparked speculation about its potential to break the $80,000 barrier. However, the perpetual futures market is sending mixed signals, with funding rates currently in negative territory.
10x Research's Founder, Markus Thielen, suggests that this disparity is driven by hedging activities from institutional players, rather than a lack of confidence in bitcoin's recent gains. Thielen, who predicted a rally to $125,000 in early 2023, believes that the negative funding rate is a result of structural changes in the market, brought about by the increasing participation of sophisticated investors.
The funding rate, which is used to keep futures prices aligned with spot prices, has been consistently negative in recent weeks, indicating that shorts are dominating the market. According to 10x Research, bitcoin's 30-day average funding rate is negative 5%, compared to a historical norm of positive 8%. Thielen identifies three key sources of short pressure in the futures market: hedge fund redemptions, institutional trades aimed at capturing yields on publicly traded bitcoin treasury companies, and the growing trend of bitcoin miners pivoting to artificial intelligence.
In each of these cases, shorting bitcoin futures is a risk management strategy, rather than a bearish bet on the cryptocurrency's price. As the bitcoin price continues to climb, the negative funding rate is likely to persist, driven by these structural factors rather than a shift in market sentiment.