Perpetual Futures Dominate Bitcoin and Ether Markets, as Evidenced by SpaceX's Successful IPO Pricing

The mechanism behind cryptocurrency price setting is often misunderstood, with many believing it is driven by spot trading. However, perpetual futures, also known as perps, have become the primary driver of price discovery in the crypto market, accounting for approximately 93% of all crypto futures volume. These contracts, which can be held indefinitely, have no expiration date and are leverage-friendly, allowing traders to bet on price movements without actually owning the underlying asset. Research has shown that perpetual swaps on unregulated venues are the strongest instruments for bitcoin price discovery, with regulated futures and US spot exchanges reacting to, rather than leading, these moves. The evidence suggests that the derivatives market is where prices are made, with spot markets following. This phenomenon was exemplified by the pricing of SpaceX's initial public offering, where perpetual futures contracts accurately predicted the company's stock price before its launch, outperforming traditional Wall Street predictions. The funding rate, which is the cost of holding a perpetual contract, plays a crucial role in maintaining the contract's price and is closely watched by traders as a sentiment indicator. The success of perpetual futures in pricing SpaceX's IPO highlights the growing influence of derivatives markets in price discovery, even in traditional assets. As the crypto market continues to evolve, it is likely that perpetual futures will remain a dominant force in shaping prices.