✅✅Soul-searching question: Perpetual contracts do not affect spot prices. If you do not hold BTC spot to do contracts, you are running naked.

✅✅Perpetual contracts do not directly affect spot prices, but there is an indirect connection between the two.

Perpetual contract prices are anchored to spot prices

The price of perpetual contracts is anchored to spot prices through funding rates. Funding rates refer to the interest paid by longs to shorts, and its positive or negative depends on the difference between spot and perpetual contract prices. When the spot price is higher than the perpetual contract price, the funding rate is positive; when the spot price is lower than the perpetual contract price, the funding rate is negative.

🩸🩸Funding rate adjusts supply and demand

The funding rate can adjust the supply and demand relationship in the perpetual contract market. When the funding rate is positive, longs need to pay interest to shorts, which will reduce the willingness of longs to hold positions, resulting in a reduction in long positions; shorts will increase their willingness to hold positions due to the interest collected, resulting in an increase in short positions. Vice versa.

✅✅Supply and demand balance affects spot prices

Changes in supply and demand in the perpetual contract market affect spot prices. When long positions decrease, it means that the market demand for the underlying asset weakens, and the spot price may fall; an increase in short positions means that the market demand for the underlying asset increases, and the spot price may rise.

✅✅Example

Assume that the spot price of Bitcoin is $10,000, the perpetual contract price is $10,100, and the funding rate is 0.01%. This means that longs need to pay 0.01% interest to shorts, and shorts will receive 0.01% interest.

* Longs reduce positions: If a large number of longs reduce their positions due to interest payments at this time, the perpetual contract price will fall. In order to maintain the funding rate at 0.01%, the spot price may also fall accordingly.

* Shorts increase positions: If a large number of shorts increase their positions due to interest payments at this time, the perpetual contract price will rise. In order to maintain the funding rate at 0.01%, the spot price may also rise accordingly.

✅✅10U’s summary: Perpetual contracts do not directly affect spot prices, but there is an indirect connection between the two. Funding rates can adjust the supply and demand relationship in the perpetual contract market, and changes in supply and demand will affect spot prices.