Every day, there is a large truckload of bitcoin perpetual contracts. As a futures contract, the relationship between bitcoin perpetual contracts and bitcoin prices is also very close. For perpetual contract investors, the cost of capital Funding Rate and Open Interest (OI) are two indicators that are quite convenient to obtain and can provide useful information. , learned the following things: Are the bulls or bears currently strong? The strength of the bulls/shorts When the strong side fails, what are the consequences What is "Bitcoin Perpetual Contract" (BTC-PERP)? pasted_image_0 Photo Credit: Cryptography Literally, this is a perpetual contract with Bitcoin-related content, which is exactly what it is.
General futures contracts have a contract expiration date. Bitcoin perpetual contracts are actually futures contracts with no expiration date. It can be imagined as a financial commodity that simulates the Bitcoin spot market model. In perpetual contracts, it is also possible to Use leverage. pasted_image_0_(1) Photo Credit: Cryptography Readers who have been photo retouching exposed to the options market in ordinary times will have another question at this time. How can a futures contract without an expiration date be maintained pegged to the price of the underlying asset (that is, Bitcoin)? The answer is: Funding Rate. What is Funding Rate? When the multi-party power is relatively strong, it means that the bitcoin perpetual contract is higher than the bitcoin price, and the funding rate will be positive.
The more the contract renewal is higher than the bitcoin price, and the stronger the bulls are, the higher the funding rate will be, and the bulls need to pay more money to the bears. Similarly, when the short side is strong and the Bitcoin perpetual contract is lower than the Bitcoin price, the funding rate will be negative, and the short-selling investor needs to pay the long side according to the funding rate to maintain the short position. Through such a mechanism, the link between the Bitcoin perpetual contract and the Bitcoin spot market can be effectively maintained. Generally speaking, the payment of the funding rate will be settled every 8 hours (for example: Binance) and once every 1 hour (for example: FTX) according to the platform.