The bitcoin price has experienced a significant surge of approximately 14% this month, marking its best monthly performance in the past year. Market consensus suggests that the price may soon exceed $80,000, a level not seen since January. However, the perpetual futures market, typically aligned with spot price movements, is currently exhibiting a divergent behavior.
Specifically, the funding rate, which is positive when futures are positioned for a price increase and negative when positioned for a drop, is currently below zero. This divergence has prompted market participants to seek an explanation.
While many interpret this as a lack of confidence in bitcoin's recent performance, 10x Research's Founder Markus Thielen offers an alternative explanation. According to Thielen, the situation is driven by hedging activity from institutions, representing a structural change in the market due to the increasing participation of sophisticated players. The funding rate is a crucial metric, as it reflects the periodic fee charged by exchanges to keep futures 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.
In recent weeks, funding rates have consistently been negative, indicating that shorts are dominating the market and perpetual futures are trading at a discount to spot price. Bitcoin's 30-day average funding rate is negative 5%, compared to the historical norm of positive 8%, according to 10x Research. This 13 percentage point discount to baseline is becoming increasingly negative, even as the price climbs.
Thielen identified three sources of short pressure in the futures market: hedge fund redemptions, institutional trades, and the growing trend of bitcoin miners pivoting to artificial intelligence. These factors are driving the negative funding rate, which is a result of mechanical risk-management trades rather than outright bearish bets on bitcoin futures.