The recent 14% monthly increase in bitcoin's price, its best performance in a year, has sparked speculation about its potential to break through the $80,000 mark. However, the perpetual futures market is telling a different story, with funding rates currently in negative territory. This has led to confusion among market participants, with some interpreting the divergence as a sign of lack of confidence in bitcoin's rally. According to Markus Thielen, founder of 10x Research, the negative funding rate is actually a result of structural changes in the market driven by institutional participation.
Thielen, who predicted a rally to $125,000 in early 2023, attributes the situation to hedging activity by institutions rather than a bearish play by retail traders. 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%, a 13 percentage point discount to the historical norm of +8%. 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 are driving the negative funding rate, which is a sign of structural changes in the market rather than a shift in sentiment.