The recent 14% surge in bitcoin's price this month, its strongest monthly performance in a year, has sparked speculation about the cryptocurrency's potential to break through the $80,000 mark, a level not seen since January. However, the perpetual futures market, which typically mirrors spot price movements, appears to be bucking this trend. The funding rate, an indicator of market sentiment, has fallen below zero, suggesting that traders are positioning themselves for a potential price drop. Despite this, 10x Research founder Markus Thielen believes that institutional hedging activities, rather than a lack of confidence in bitcoin's performance, are driving this divergence.
Thielen, who accurately predicted a rally to $125,000 in early 2023, attributes the negative funding rate to structural changes in the market, brought about by the increasing participation of sophisticated investors. The funding rate is a crucial mechanism that keeps futures prices tied to spot prices, and its current negative state suggests that shorts are dominating the market. In recent weeks, funding rates have consistently been negative, indicating that perpetual futures are trading at a discount to spot prices.
The 30-day average funding rate is currently at -5%, compared to the historical norm of +8%, representing a 13 percentage point discount. 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.