Bitcoin has risen about 14% this month, its best monthly performance in a year, and the consensus is that the price could soon push past $80,000, a level not seen since January.
Yet the perpetual futures market, which is typically synchronized with spot price action, behaves as if the opposite is true. Specifically, the funding rate — a number that is positive when futures are positioned for a bitcoin price rise and negative when positioned for a fall — is currently below zero.
That has left market participants scrambling for an explanation. While many read the divergence as a signal that traders lack confidence in bitcoin’s recent performance and are positioned for a decline, that is not the only explanation.
According to 10x Research founder Markus Thielen, who predicted a rally to $125,000 way back in early 2023, the situation is actually driven by hedging activity from institutions. Rather than shots from retailers, the negative funding rate represents a structural change in the market caused by the increasing participation of sophisticated players.
Why the financing rate matters
Perpetual futures are contracts that track bitcoin’s price without ever expiring, unlike standard futures listed on an exchange like the CME. To keep futures prices tied to spot prices, exchanges charge a periodic fee, the funding rate.
When futures prices are higher than spot, meaning buyers are more aggressive in the futures market, longs (investors who own futures) pay shorts (who have sold contracts they did not own in the expectation that they will be able to buy them back at a lower price). In that case, the financing ratio is positive.
When futures trade below spot, it is a sign that short pressure is pulling futures down relative to actual bitcoin, shorts are paying longs, and the rate is going negative.
The funding-rate mechanism acts as a real-time gauge of market sentiment.
In recent weeks, funding rates have been consistently negative, meaning the shorts are in charge and perpetual futures have traded at a discount to the spot price.
Bitcoin’s 30-day average funding rate is negative 5% compared to the historical norm of positive 8%, according to 10x Research. That’s a discount of 13 percentage points from the baseline, and it becomes more negative even as the price rises.
“Bitcoin funding rates are sending an unusual signal,” Thielen wrote in a note to clients on Saturday. “At minus 5% on a 30-day average against a historical norm of plus 8%, and turning more negative even as Bitcoin rises 15% and the options skew recovers, something structural is happening in the futures market, not a sentiment shift.”
Structural pressures
Thielen identified three sources of the short-term pressure in the futures market.
The first is hedge fund redemptions. Crypto hedge funds have underperformed bitcoin by 140% over five years, and investors have pulled out. It takes time, and during redemption notice periods, funds have shorted bitcoin futures to neutralize their price exposure while they wait for their capital to return to their bank or trading accounts. These are mechanical risk management trades, not bearish bets, Thielen said.
The second involves two separate institutional trades, both of which require shorting bitcoin futures as a hedge. Shares of Strategy (MSTR), the largest publicly traded bitcoin treasury company, are betting to outperform bitcoin outright while shorting futures. The other is aimed at capturing the 11% return on MSTR Preferred Shares (STRC) while shorting futures to remove the risk of crypto price volatility. The strategy raised $3.5 billion in April alone, boosting both deals simultaneously.
The third is the growing trend of bitcoin miners to turn to artificial intelligence. Miners like Hut 8, up 48% since April 6, are reducing their bitcoin production and increasing their support for AI computing. Funds that buy these stocks simultaneously short bitcoin futures to remove crypto correlation from the trade. Again, this is risk management, not an outright bearish play in bitcoin futures.
