The recent 14% surge in bitcoin's price this month, its highest monthly gain in a year, has sparked speculation about the cryptocurrency's potential to break through the $80,000 mark, a level not seen since January. However, the perpetual futures market is telling a different story. The funding rate, which is typically positive when futures are positioned for a price increase and negative when positioned for a drop, is currently below zero.
This divergence has left market participants searching for an explanation. While some interpret this as a lack of confidence in bitcoin's recent performance, 10x Research's Founder Markus Thielen attributes the negative funding rate to hedging activity by institutions.
The increasing participation of sophisticated players in the market has led to a structural change, resulting in the negative funding rate. The funding rate is a crucial mechanism that keeps futures prices tied to spot prices, with exchanges charging a periodic fee to maintain this balance.
When futures prices exceed spot prices, longs pay shorts, and the funding rate is positive. Conversely, when futures trade below spot, shorts pay longs, and the rate becomes negative. The current 30-day average funding rate of negative 5% is a significant deviation from the historical norm of positive 8%.
Thielen identifies 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 contribute to the negative funding rate, which is a result of risk-management trades rather than outright bearish bets on bitcoin futures.