The recent surge in bitcoin's price, with a 14% increase this month, has led to speculation about the cryptocurrency's future performance. However, the perpetual futures market is behaving contradictorily, with a negative funding rate that suggests a lack of confidence in bitcoin's recent gains.
According to Markus Thielen, founder of 10x Research, this disparity can be attributed to hedging activities by institutions rather than a bearish outlook. Thielen, who predicted a rally to $125,000 in early 2023, believes that the increasing participation of sophisticated players in the market is driving the negative funding rate. The funding rate, which is a periodic fee charged by exchanges to keep futures prices tied to spot prices, has been consistently negative in recent weeks. This means that shorts are currently in control, and perpetual futures are trading at a discount to the spot price.
The 30-day average funding rate is negative 5%, compared to the 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 is a result of structural changes in the market rather than a shift in sentiment. As the bitcoin price continues to climb, the negative funding rate is becoming more pronounced, suggesting that institutional hedging activities are driving the market's behavior.