The bitcoin price has seen a significant increase of roughly 14% this month, marking its best monthly performance in a year. Despite this, the perpetual futures market is exhibiting behavior that suggests a potential downturn. The funding rate, which is typically positive when futures prices are higher than spot prices, 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 recent performance.
Thielen, who predicted a rally to $125,000 in early 2023, believes that the negative funding rate represents a structural change in the market driven by the increasing participation of sophisticated players. The funding rate is a key indicator of market sentiment, and its current negative level suggests that shorts are dominating the market. According to 10x Research, the 30-day average funding rate is negative 5%, compared to a historical norm of positive 8%.
Thielen identifies three sources of short pressure in the futures market: hedge fund redemptions, institutional trades involving shorting bitcoin futures as a hedge, and the growing trend of bitcoin miners pivoting to artificial intelligence. These factors are driving the negative funding rate, which is not a reflection of bearish sentiment, but rather a result of mechanical risk-management trades.