Perpetual futures emerge as leading signal for institutional bitcoin markets

Mark Pilipczuk, research analyst at Financial Conduct Authority (FCA)-regulated benchmark administrator CF Benchmarks, told FOW at the end of August that perpetual futures volumes, open interest and funding rates can help identify whether retail traders are participating in a bitcoin move before institutional flows appear in regulated futures and ETF markets.

"Those markets are really good to watch, mostly when the traditional venues are closed, so I like to watch those over the weekends," Pilipczuk told FOW in an interview. "What we're really looking for there is kind of a confirmation signal when we get this bullish options positioning. We're looking at the perpetual futures funding rate because that's mostly a retail product. Institutions aren't really trading that stuff. They'll use the fixed-term futures."

The distinction is becoming increasingly relevant as derivatives markets explore longer trading hours and always-on models, potentially narrowing the divide between crypto-native venues and traditional exchanges.

Retail flow as a leading indicator

Pilipczuk said CF Benchmarks watches several retail-heavy derivatives indicators together, including short-dated IBIT options, perpetual futures volumes and open interest, and perpetual funding rates.

"If we're looking for signs of retail flows, it's those short-dated options on IBIT, which are a popular retail product, increase in volume and open interest on perpetual futures, popular retail product, as well as an increase in the funding rate, which shows that most of these traders are going long," he said. "That's what we want to see: traders going long and with volume."

Rather than making those signals more difficult to interpret, Pilipczuk said the growth of always-on markets could make it easier to distinguish retail positioning from institutional activity.

"It's actually can be more helpful because you can get leading signals out of these always-on markets," he said.

Traditional regulated venues are likely to retain the bulk of institutional activity because banks, structured-product issuers, endowments and other investors face investment mandates governing where they can trade, Pilipczuk said.

Retail traders, by contrast, can gravitate towards 24/7 venues offering faster funding and significantly higher leverage.

"So I know where to look. I can see maybe here's retail as a leading signal. Retail's coming in; their marginal buyers pushing price higher. Are the institutions following through on the fund flows? So far, the answer is yes," Pilipczuk said.

CME provides institutional confirmation

Pilipczuk said recent market activity provides an example of that relationship.

As bitcoin's futures basis increased to around 11% to 12%, hedge funds were likely to be attracted to trades using ETFs for the spot leg and futures for the other side of the position.

CME futures volumes had roughly doubled and open interest increased around 20% to 30%, according to Pilipczuk, indicating institutional participation alongside more speculative retail flows.

The options market is providing a similar signal. Pilipczuk said CME's bitcoin options volatility surface had moved in the same direction as IBIT options, although the shift was more muted.

He said CME's options skew was around half that of IBIT, which could indicate institutions moving in the same direction as retail traders or arbitrageurs stepping in between markets.

"That's signs of a healthy, efficient, liquid market," Pilipczuk said.

Activity has also increased on offshore crypto derivatives venues, with Pilipczuk pointing to higher volumes and open interest as bitcoin volatility increased.

US crypto exchange Kraken, which owns CF Benchmarks, has also seen demand for perpetual futures spread beyond digital assets. John Palmer, the exchange's global head of derivatives, told FOW in June that traders were increasingly seeking perpetual exposure to commodities, foreign exchange and equities, with Kraken offering oil and FX perpetuals to non-US customers alongside contracts on tokenised US equities. Palmer said the trend reflected a broader convergence between crypto and traditional derivatives markets, with more assets likely to trade around the clock alongside the development of 24/7 collateral infrastructure.

What to watch next

The key question is whether signals generated by perpetual futures and other always-on markets are subsequently confirmed by institutional activity.

Pilipczuk said he would watch futures markets, bitcoin's 200-day moving average, resistance levels and the size of underlying price moves alongside investor allocations.

Fund flows will ultimately be critical to determining whether the shift is sustained.

"If we want to see a persistent skew to the upside or a bias to the upside in the options market, we need to see a bias towards buying in the spot market," Pilipczuk said.

That includes watching ETF flows, investment adviser allocations, corporate bitcoin holders and large on-chain investors.

"If we see net buyers across all three of those kind of cohorts of people, that would confirm more of a bullish market structure," he added.

This comes as Bybit on August 31 introduced options contracts tied to stock perpetuals and said it plans to launch perpetual options on September 17, initially linked to Nvidia and SpaceX. The USDT-settled products are designed to offer 24/7 trading and portfolio margining, as crypto exchanges increasingly apply perpetual-style market structures to traditional assets.