The Dominance of Perpetual Futures in Crypto Markets and Beyond

The process of setting crypto prices is often misunderstood, with many assuming it is driven by spot trading, where buyers and sellers meet on an exchange. However, perpetual futures, which are leverage-friendly contracts that never expire, now account for approximately 93% of all crypto futures volume, with daily volumes often surpassing those of the spot market. These contracts, also known as perpetual swaps, allow traders to bet on the price of an asset without an expiry date, providing a continuous market for speculation. The 'funding rate,' a cost associated with holding these contracts, varies daily and serves as a tether to the underlying asset's price, while also reflecting market sentiment. Research has shown that perpetual swaps on unregulated venues are often the primary drivers of bitcoin price discovery, with regulated futures and US spot exchanges reacting to these moves rather than leading them. 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 a key source of price formation in the crypto landscape. While the evidence is not conclusive, and some studies suggest that spot markets may still lead at certain frequencies or during times of stress, the trend in recent literature points to the derivatives market as the primary driver of price discovery. Historically, perpetual futures have led price rallies during bear markets, with demand growth in these contracts often preceding price increases. For example, Bitcoin perps demand growth led the price rallies of January 2026 and April-May 2026, despite contracting spot demand. The funding rate, which is paid by the crowded side of the trade every few hours, serves as a live readout of sentiment and is closely watched by some traders. A survey of over 100 traders by onchain trading platform Grvt found that traders who hold directional positions for weeks prioritize predictability in the funding rate, rather than using it as an additional data point to interpret. The recent initial public offering (IPO) of SpaceX, which was priced at $135 per share, provides a unique example of the influence of perpetual futures. Traders on Binance, Coinbase, Hyperliquid, and other platforms were able to buy and sell exposure to the company through pre-IPO perpetual futures, which were structured to track an implied valuation rather than a share price. The first mover was Hyperliquid, which launched a synthetic SpaceX perpetual on May 18, followed by Binance on May 21, and Coinbase on June 4. The striking aspect of this market was its accuracy in predicting the first-day trading price of SpaceX. On the night before the IPO, perpetuals on Hyperliquid and Binance were quoting the equivalent of roughly $170 per share, well above the $135 IPO price. The next day, SpaceX opened at $176 and closed at $161, up 19%, with the stock printing almost exactly where the perps had it. This gap between the IPO price and the first-day trading price presented an opportunity for traders to profit from the difference. However, the perpetual market's ability to price demand was limited by its blindness to supply, which ultimately led to a decline in the stock price. As the IPO was four times oversubscribed, the direction of the trade was rarely in doubt, and the pre-listing window was the only place to make the trade. The subsequent decline in the stock price, which fell more than 40% from its June peak, was driven by the supply of locked-up insider shares becoming eligible to sell. This example highlights the dominance of perpetual futures in price discovery, not only in crypto markets but also in other areas, such as the valuation of private companies. The derivatives market is increasingly where price gets discovered, with spot markets following. Perpetual futures are excellent at pricing demand but blind to supply, a limitation worth remembering in times of market volatility.