Perpetual Futures Dominate Bitcoin and Ether Markets, Proven by SpaceX IPO

The process of setting crypto prices is often misunderstood, with many believing it is driven by spot trading, where buyers and sellers meet on an exchange. However, the reality is that perpetual futures, also known as perpetual swaps or 'perps', have become the primary driver of price discovery in the crypto market, accounting for approximately 93% of all crypto futures volume. Perpetual futures are leverage-friendly contracts that never expire and can be held indefinitely, with the price being kept in check by a funding rate that is paid by the crowded side of the trade every few hours. 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. A recent study found that Binance's perpetual market is the primary source of price formation across the fragmented crypto landscape. The evidence is not conclusive, but the direction of the literature over the past few years has been towards the derivatives market as the place where the price is made. Historically, perpetual futures have led price rallies, particularly during bear markets. For example, Bitcoin perps demand growth led the price rallies of January 2026 and April-May 2026, despite spot demand contracting. The funding rate is a critical component of perpetual futures, as it keeps the contract price anchored to the underlying asset and provides a live readout of market sentiment. Some traders watch the funding rate closely, as it can provide valuable insights into market trends. However, others view it as a cost that eats into their profit and loss, rather than a useful data point. A recent example of the power of perpetual futures in price discovery was seen with the initial public offering (IPO) of SpaceX, which was priced at $135 per share but was trading at around $170 per share on perpetual futures markets before its listing. The stock ultimately opened at $161 per share, up 19% from the IPO price, demonstrating the accuracy of the perpetual futures market in predicting demand. However, the perpetual futures market is blind to supply, which can have a significant impact on prices. In the case of SpaceX, the stock price has fallen over 40% from its peak due to the release of locked-up insider shares, which was not factored into the perpetual futures price. This example highlights the importance of understanding the role of perpetual futures in price discovery and the limitations of their ability to predict market trends.