The recent 14% monthly surge in bitcoin's price to $78,766.07 has sparked speculation about its potential to break the $80,000 barrier, a level unseen since January. However, the perpetual futures market is exhibiting a contradictory trend, with funding rates currently in negative territory.
This anomaly has prompted market analysts to seek explanations beyond the typical interpretation of a bearish market sentiment. According to Markus Thielen, founder of 10x Research, the negative funding rate is, in fact, a result of institutional hedging activities, 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 the increasing participation of sophisticated players in the market. The funding rate, which is used to keep futures prices aligned with spot prices, has been consistently negative in recent weeks, indicating that shorts are dominating the market.
The 30-day average funding rate is currently at -5%, compared to the historical norm of +8%, representing a 13 percentage point discount to baseline. Thielen identifies three key 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 is a structural change in the market rather than a sentiment shift. As the price of bitcoin continues to climb, the funding rate is becoming increasingly negative, indicating that the market is undergoing a significant transformation driven by institutional activities.