Perpetual Futures Dominate Bitcoin and Ether Markets, Demonstrating Their Influence

The process of establishing a crypto price is often misunderstood, with many believing it is determined by spot trading. However, for years, perpetual futures have played a significant role in setting prices for bitcoin, ether, and the broader crypto market, accounting for roughly 93% of all crypto futures volume. Perpetual futures, or 'perps,' are contracts that never expire and offer leverage, allowing traders to hold positions indefinitely by paying a funding rate that varies daily. Research has shown that these derivatives markets are where price discovery primarily occurs, with the spot market reacting to moves initiated in the derivatives space. A study published in the Journal of Financial Markets found that perpetual swaps on unregulated venues were the strongest instruments for bitcoin price discovery. Other research has identified Binance's perpetual market as the primary source of price formation across the fragmented crypto landscape. While the evidence is not conclusive, and some studies suggest spot markets still lead at certain frequencies or during times of stress, the majority of recent literature points to derivatives markets as the primary drivers of price. Historically, perps have led price rallies during bear markets. For example, Bitcoin perps demand growth led price rallies in January 2026 and April-May 2026, despite spot demand contracting. The funding rate, which is paid by the crowded side of the trade every few hours, serves as both an anchor to the underlying price and a live readout of sentiment. Traders closely watch the funding rate, as it provides insight into market sentiment. The use of perpetual futures was also demonstrated in the valuation of SpaceX ahead of its IPO. Traders on various platforms, including Binance, Coinbase, and Hyperliquid, bought and sold exposure to the company through pre-IPO perpetual futures. These contracts were structured to track an implied valuation rather than a share price. The perpetual market accurately predicted the first-day demand for SpaceX, with prices on Hyperliquid and Binance quoting the equivalent of roughly $170 a share, well above the $135 IPO price set by underwriters. The stock opened at $161, up 19% from the IPO price, and the perpetual market had priced SpaceX correctly. However, the stock has since fallen more than 40% from its June peak, due to supply issues that the perp market could not have priced. This example demonstrates the influence of perpetual futures in price discovery, even in non-crypto markets. The derivatives market is increasingly where price gets discovered, and spot follows.