The bitcoin price has seen a significant rally of roughly 14% this month, marking its best monthly performance in a year. Despite this, the perpetual futures market is exhibiting a divergence, with funding rates currently below zero. Typically, a negative funding rate would indicate a bearish outlook, but according to 10x Research's Founder Markus Thielen, this trend is driven by hedging activity from institutions rather than a lack of confidence in bitcoin's performance. Thielen, who predicted a rally to $125,000 in early 2023, attributes the negative funding rate to structural changes in the market resulting from increased participation by sophisticated players.
The funding rate, which is a periodic fee charged by exchanges to keep futures prices aligned with spot prices, has been consistently negative in recent weeks. This means that shorts are currently in charge, and perpetual futures are trading at a discount to the spot price.
Bitcoin's 30-day average funding rate is negative 5%, compared to a historical norm of positive 8%, indicating a 13 percentage point discount to the baseline. 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 contribute to the negative funding rate, which Thielen believes reflects a structural shift in the market rather than a sentiment shift.
As the bitcoin price continues to climb, the negative funding rate is becoming even more pronounced, with Thielen noting that 'something structural is happening in the futures market, not a sentiment shift.'