How Perpetual Futures Dominate Bitcoin and Ether Markets, as Seen in SpaceX's Record-Breaking 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 and the last trade sets the price. However, this has not been the case for years, particularly for bitcoin, ether, and the broader crypto market. Perpetual futures, also known as perpetual swaps or 'perps,' are contracts that never expire and have become the primary driver of price discovery, accounting for approximately 93% of all crypto futures volume. A traditional futures contract has a settlement date when it comes due and its price is forced to meet the spot price of the underlying asset. In contrast, a perpetual contract has no such date and can be held indefinitely, with the buyer or seller paying a funding rate that varies daily. Research has shown that perpetual swaps on unregulated venues are the strongest instruments for bitcoin price discovery, with regulated futures and U.S. spot exchanges reacting to, rather than leading, these moves. A study in the Journal of Financial Markets found that perpetual swaps on unregulated venues were the primary source of price formation for bitcoin, while other work has identified Binance's perpetual market as the leading source of price formation across the fragmented crypto landscape. While the evidence is not conclusive, with some studies suggesting spot markets still lead at certain frequencies or during times of stress, the direction of the literature over the past few years has been toward the derivatives market as the primary driver of price discovery. 'Historically, we have seen perps leading mostly during bear market price rallies,' said Julio Moreno, head of research at CryptoQuant. 'For example, Bitcoin perps demand growth led the price rallies of January 2026 and April-May 2026.' The funding rate, which is paid by the crowded side of the trade every few hours, serves as a tether that keeps the contract anchored to the underlying price and provides a live readout of market sentiment. Some traders closely watch the funding rate, as it can provide valuable insights into market sentiment. However, others view it as a cost that eats into their profit and loss while they wait for their directional position to play out. The use case of SpaceX, which recently priced its record $75 billion initial public offering, demonstrates the influence of perpetual futures on market prices. Traders on Binance, Coinbase, and other platforms were buying and selling 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 is how accurately these perpetuals predicted the stock's first-day price, with the contracts on Hyperliquid and Binance quoting the equivalent of roughly $170 a share, well above the $135 IPO price set by the underwriters. The next day, SpaceX opened at $176 and closed its first session at $161, up 19%, with the stock printing almost exactly where the perps had it. This demonstrates how a market dominated by leverage-seeking retail traders can read demand more accurately than traditional banks. However, the perpetual market's inability to price supply was evident when the stock fell more than 40% from its June peak, dropping from the $135 IPO price to around $115, due to the release of locked-up insider shares. This example highlights the importance of understanding the role of perpetual futures in driving price discovery and the limitations of their ability to price supply.