The price of bitcoin has seen a significant increase of approximately 14% this month, marking its best performance in a year. Despite this, the perpetual futures market is exhibiting behavior that suggests a lack of confidence in the cryptocurrency's recent gains.
The funding rate, which is typically positive when futures prices are higher than spot prices and negative when they are lower, is currently below zero. However, 10x Research's Founder Markus Thielen believes that this divergence is not a sign of bearish sentiment, but rather a result of structural changes in the market driven by the increasing participation of institutional investors.
Thielen attributes the negative funding rate to hedging activities by institutions, including hedge fund redemptions, trades involving the shares of Strategy, a publicly traded bitcoin treasury company, and the growing trend of bitcoin miners pivoting to artificial intelligence. These activities involve shorting bitcoin futures as a means of risk management, rather than a bearish bet on the cryptocurrency's price.
The funding rate mechanism acts as a real-time gauge of market sentiment, and the current negative rate is a result of the increasing short pressure in the futures market. With the 30-day average funding rate at negative 5%, compared to the historical norm of positive 8%, Thielen believes that something structural is happening in the futures market, rather than a shift in sentiment.