Perpetual Futures Dominate Bitcoin and Ether Markets, with a Surprising Showcase in SpaceX's IPO

The process of setting crypto prices is often misunderstood, with many believing it involves spot trading where buyers and sellers meet on an exchange. However, for bitcoin, ether, and the broader crypto market, perpetual futures, or 'perps,' have become the primary drivers of price discovery, accounting for about 93% of all crypto futures volume. These contracts, which never expire and are leverage-friendly, allow traders to hold positions indefinitely by paying a funding rate that varies daily. Research, including a study in the Journal of Financial Markets by Carol Alexander and co-authors, has found that perpetual swaps on unregulated venues are the strongest instruments for bitcoin price discovery, with regulated futures and U.S. spot exchanges reacting to these moves rather than leading them. Another study identified Binance's perpetual market as the primary source of price formation across the crypto landscape. While the evidence is not conclusive, with some studies suggesting spot markets still lead at certain frequencies or during stress, the direction of recent literature points towards the derivatives market as the place where prices are made. Julio Moreno, head of research at CryptoQuant, noted that historically, perps have led mostly during bear market price rallies, citing examples such as Bitcoin perps demand growth leading price rallies in January and April-May 2026, despite spot demand contracting. The funding rate, which is paid every few hours by the crowded side of the trade to the less crowded side, acts as both the tether that keeps the contract anchored to the underlying price and a live readout of sentiment. Traders closely watch the funding rate for insights into market sentiment, although some traders view it as a cost that eats into their profit and loss (PnL) rather than a new data point to interpret, according to Hong Yea, co-founder at onchain trading platform Grvt. A unique demonstration of the power of perps in price discovery was seen in the lead-up to SpaceX's record $75 billion initial public offering (IPO). Before the company had ever sold a public share, traders on platforms like Binance, Coinbase, and Hyperliquid were buying and selling exposure to SpaceX through pre-IPO perpetual futures. These contracts, structured to track an implied valuation rather than a share price, allowed traders to bet on the company's valuation before its listing. Notably, the perpetuals on Hyperliquid and Binance were quoting the equivalent of roughly $170 a share the night before SpaceX listed, significantly above the $135 set by underwriters. When SpaceX began trading on the Nasdaq, it opened at a price that closely matched the predictions of the perpetual markets, with the stock running to an intraday high above $176 and closing its first session at $161, up 19%. This accuracy underscores the ability of the derivatives market to read demand and predict prices, even in the absence of a traditional spot market. However, the perpetual market's blind spot is supply, as evidenced by SpaceX's subsequent price drop following the eligibility of insider shares to sell, a factor the perp market could not have priced. This example, along with the broader trends in crypto markets, highlights the increasing importance of derivatives in price discovery, with spot markets following the lead of perpetual futures.