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

The process of setting a crypto price is often misunderstood. While many believe it involves spot trading where buyers and sellers meet on an exchange, the reality for bitcoin, ether, and the broader crypto market is different. Perpetual futures, or 'perps', which are contracts that never expire and offer leverage, now account for about 93% of all crypto futures volume. These contracts can be held indefinitely by paying a funding rate that varies daily. Research has shown that derivatives markets, particularly perpetual swaps on unregulated venues, are the strongest instruments for bitcoin price discovery, with regulated futures and US spot exchanges following their lead. A study found that Binance's perpetual market is a primary source of price formation in the crypto landscape. Although the evidence is not conclusive and some studies suggest spot markets still lead in certain situations, the trend over the past few years points to derivatives markets as the primary place where prices are made. Historically, perpetual futures have led price rallies, especially during bear markets. For example, Bitcoin perps demand growth led the price rallies in January and April-May 2026, despite spot demand contracting. The funding rate, which is paid by the crowded side of the trade every few hours, acts as a tether keeping the contract price anchored to the underlying price and serves as a live readout of sentiment. Traders watch it closely, alongside price movements. However, for those holding directional positions for weeks, the funding rate is seen more as a cost that eats into their profit and loss rather than a new data point to interpret. A unique case that highlighted the influence of perpetual futures beyond crypto markets was the initial public offering (IPO) of SpaceX. Before the company's record $75 billion IPO, traders were buying and selling exposure to SpaceX through pre-IPO perpetual futures on platforms like Binance, Coinbase, and Hyperliquid. These contracts were structured to track an implied valuation rather than a share price. Notably, the perpetual futures market accurately predicted the first-day trading price of SpaceX, outperforming the banks that set the IPO price. The perpetual market had priced SpaceX well above the $135 IPO price, allowing traders to bet on the gap between the perp and the eventual opening price. However, after the IPO, the stock price fell more than 40% from its peak, due to factors like supply that the perpetual futures market could not price. The SpaceX case illustrates what research suggests is true for ordinary crypto trading: the derivatives market is increasingly where price discovery happens, with spot markets following. Perpetual futures excel at pricing demand but are blind to supply, a crucial distinction to remember in understanding market movements.