PEPE, a new meme coin, has seen its market capitalization surge to over $500 million in just over two weeks since launch. However, funding rates in perpetual futures tied to the token remain negative, indicating the dominance of bearish positions in the derivatives market. A negative funding rate suggests that most traders expect prices to drop, and this could be due to outright bearish speculation or hedging activity. As small-cap meme tokens like PEPE tend to be more volatile than market leaders such as Bitcoin and Ethereum, they can fluctuate greatly in a short amount of time, leading to negative funding rates. While the funding rates reflect the bearish market sentiment, they also indicate scope for a short squeeze, which could trigger a rally if there is a mass unwinding of bearish short positions. According to data tracking platform Laevitas, PEPE's recent rally may have been partly driven by a short squeeze.

(By Omkar Godbole)