Why is the funding rate so high and the annual interest rate exceeds 100%?

The root cause of this phenomenon is that the vast majority of contract traders in the market tend to go long. For example, suppose there are 10 traders in the market, and 8 of them are long. This results in a lack of short counterparties in the market and makes it difficult to open short orders. In order to encourage arbitrageurs to place short orders to fill market liquidity, the trading platform will provide funding rate incentives to traders who place short orders. When the number of long positions continues to increase and the number of short positions decreases, the funding rate will increase accordingly, and the interest rate for risk-free arbitrage will also increase.

Why are prices still rising despite high funding rates? This phenomenon is mainly determined by the relationship between supply and demand. The main reason for the current price increase is that the Bitcoin ETFs listed on U.S. stocks continue to attract buying, resulting in a continuous influx of buying orders in the spot market. However, the surge in funding rates is mainly caused by the long-short imbalance among floor contract traders. Therefore, despite the increase in funding rates, the market has become an incremental market due to the continuous influx of funds supporting price increases, and the trading rules of the stock market have failed.