How Perpetual Futures Dominate Bitcoin and Ether Markets, and a Recent IPO Proved Their Influence

The process of setting a crypto price is often misunderstood, with many believing it is determined by spot trading, where buyers and sellers meet on an exchange. However, for years, perpetual futures, also known as perpetual swaps or 'perps', have played a significant role in determining the prices of bitcoin, ether, and other cryptocurrencies. These contracts, which never expire, account for approximately 93% of all crypto futures volume, with daily perp volume often surpassing the spot market. A study in the Journal of Financial Markets found that perpetual swaps on unregulated venues were the strongest instruments for bitcoin price discovery, with regulated futures and U.S. spot exchanges reacting to, rather than leading, these moves. The evidence suggests that the derivatives market is where the price is made, with the spot market following. This is evident in the way perpetual futures led the price rallies of January 2026 and April-May 2026, despite spot demand contracting. The funding rate, which is the cost of holding a perpetual contract, is a key factor in determining the price, as it reflects the sentiment of traders and keeps the contract anchored to the underlying price. A recent example of the influence of perpetual futures is the initial public offering (IPO) of SpaceX, where traders on Binance, Coinbase, and other exchanges were buying and selling exposure to the company through pre-IPO perpetual futures. The perpetual market accurately priced SpaceX above the $135 IPO price, and when the stock began trading, it opened at a price close to the perpetual futures price. This example demonstrates the significant role that perpetual futures play in price discovery, even in traditional markets. However, it also highlights the limitations of perpetual futures in pricing supply, as the subsequent decline in SpaceX's stock price was due to the release of locked-up insider shares, which the perpetual market had not factored in.