How Perpetual Futures Dominate Bitcoin and Ether Markets, and What SpaceX Taught Us

The process of setting cryptocurrency prices is often misunderstood. While many believe that spot trading is the primary driver, the reality is that perpetual futures, also known as perpetual swaps or 'perps,' have become the dominant force in the crypto markets. These leverage-friendly contracts never expire and now account for approximately 93% of all crypto futures volume, with daily perp volume often surpassing the spot market. A key difference between traditional futures contracts and perps is that perps do not have a settlement date, allowing them to be held indefinitely by paying a funding rate that varies daily. Research has shown that derivatives markets, particularly those offering perpetual swaps, are where new information enters the market before it appears elsewhere, thus driving price discovery. 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 these moves rather than leading them. Other research has identified Binance's perpetual market as the primary source of price formation in the fragmented crypto landscape. While the evidence is not conclusive and some studies suggest spot markets still lead at certain frequencies or during stress, the overall direction of the literature points to derivatives markets as the primary location for price formation. Historically, perpetual futures have led price rallies during bear markets. For example, Bitcoin perps demand growth led the price rallies of January 2026 and April-May 2026, despite spot demand contracting during these periods. The funding rate, which is paid by the crowded side of the trade every few hours, serves as both the tether that keeps the contract price anchored to the underlying asset and a live readout of market sentiment. Some traders closely watch the funding rate as it provides insight into the market's direction. However, for traders holding directional positions for extended periods, the funding rate can simply eat into their profit and loss without providing new information about the market. A notable example of the influence of perpetual futures was seen in the pricing of SpaceX's initial public offering (IPO). Before the company's shares were publicly traded, perpetual futures contracts tracking an implied valuation of SpaceX were available on various crypto exchanges. These contracts allowed traders to buy and sell exposure to the company's valuation. Interestingly, the perpetual futures market accurately predicted the first-day trading price of SpaceX's shares, with prices on Hyperliquid and Binance quoting the equivalent of roughly $170 a share, well above the $135 IPO price set by underwriters. On the first day of trading, SpaceX's shares opened at $161, up 19% from the IPO price, closely matching the predictions of the perpetual futures market. This example illustrates the ability of the derivatives market to discover prices, even for assets that have not yet started trading. However, the perpetual futures market is excellent at pricing demand but blind to supply. The subsequent drop in SpaceX's share price, falling more than 40% from its peak, was due to supply factors that the perp market could not have priced, such as the eligibility of locked-up insider shares to sell. This highlights the limitations of perpetual futures in certain market conditions. In conclusion, the derivatives market, particularly perpetual futures, plays a significant role in price discovery for cryptocurrencies like bitcoin and ether. The example of SpaceX's IPO demonstrates the influence of perpetual futures in pricing assets, even before they start trading. Understanding the dynamics of perpetual futures and their role in the crypto market is essential for traders and investors seeking to navigate these complex markets.