The bitcoin price has seen a 14% increase 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. According to 10x Research's Founder Markus Thielen, this disparity is driven by hedging activities from institutions, rather than a lack of confidence in bitcoin's recent performance.
Thielen, who predicted a rally to $125,000 in early 2023, suggests that the negative funding rate represents a structural shift in the market due to the increasing participation of sophisticated players. The funding rate, which acts as a real-time gauge of market sentiment, has been consistently negative in recent weeks, indicating that shorts are in control and perpetual futures are trading at a discount to spot price.
Bitcoin's 30-day average funding rate is currently negative 5%, compared to the historical norm of positive 8%. Thielen identifies three sources of short pressure in the futures market: hedge fund redemptions, institutional trades requiring shorting bitcoin futures as a hedge, and bitcoin miners pivoting to artificial intelligence. These mechanical risk-management trades, rather than outright bearish bets, are contributing to the negative funding rate.
As the price of bitcoin continues to climb, the funding rate is becoming increasingly negative, suggesting that something structural is occurring in the futures market, rather than a shift in sentiment.