Binance Coin (BNB) holders enjoyed a 1,760% rally from $37 to $692 between January and May 2021, but as usual for cryptocurrencies, this rally was followed by a 69% correction two weeks later. .
From there, it has been a bit difficult to regain investor confidence and BNB failed to produce another all-time high in November, despite the aggregate cryptocurrency market capitalization hitting a high of $3 trillion.
Aside from being 33% below its all-time high, BNB investors have other reasons to question whether the current price of $465 is sustainable. Especially since traders were recently paying up to 3% weekly to keep short futures positions open, betting on the downside.
Traders turned bearish on June 10
Unlike regular monthly contracts, perpetual futures prices are very similar to regular spot exchanges. This makes the process much easier for retail traders because they no longer have to calculate the futures premium or manually roll over positions near expiration.
The funding fee allows this magic to happen, and longs (buyers) are charged when they demand more leverage. However, when the situation is reversed and the shorts (sellers) become excessively leveraged, the financing rate becomes negative and they are the ones who pay the rate.
Notice how the BNB futures funding rate was roughly flat between Dec 15 and Jan 10, but then quickly jumped to -0.13%. This rate is equivalent to 2.8% weekly, a relatively high cost for shorts (sellers) to keep their positions open. The move came as BNB tested support at $410, its lowest price in 90 days.
The reason behind Binance’s sale could be the excessive premium against competing smart contract chains. For example, BNB’s market capitalization of $78.2 billion is 80% higher than Solana’s (SOL) of $43.3 billion. In addition, the premium to $28.2bn Terra ((LUNA) is 178%, and 275% to $20.8bn Avalanche (AVAX). Other factors at play could also be the total value locked (TVL ) on Binance Smart Chain, stuck at $15 billion.
For comparison, Terra’s TVL increased from $9 billion to $19 billion in three months, while Avalanche grew from $6.5 billion to $11.6 billion in the same period. The competition has vastly outpaced Binance Chain apps, except for the number of active users on the decentralized exchange, PancakeSwap.
To properly assess whether Binance Smarth Chain usage has peaked, you need to analyze network activity. Some decentralized applications (dApps) such as games, social networks, and NFT marketplaces require little total value locked (TVL) deposited in smart contracts.
Data shows that daily transactions on the BSC peaked at 15 million on November 25 and are recently averaging 6.5 million a day. It should also be noted that Binance Chain’s main competitor, Ethereum, has been struggling with average transaction fees hovering around $40 or more, creating the perfect scenario for competing chains.
Despite this opportunity to grab market share, the Binance Smart Chain appears to have plateaued in terms of daily transactions and TVL, both signs of growth and adoption.
Binance’s leadership position in the derivatives sector could be disputed
The competition for the leadership position of Binance could be challenged as Coinbase, the largest cryptocurrency exchange in the United States, plans to start offering derivatives trading after the acquisition of FairX.
Additionally, FTX raised $1.32 billion from private investors and FTX US finalized its acquisition of crypto options exchange LedgerX on Oct. 25. This cements its plans to offer derivative contracts to US investors.
There is a good chance that Binance will maintain its lead against Coinbase and FTX derivatives, considering that it has the first-of-its-kind advantage. Additionally, Binance launched a $1 billion development fund on Oct. 12 to expand the capabilities of the Binance Smath Chain ecosystem.
Overvalued or not, solid fundamentals support the third largest cryptocurrency in the market and while short-term price performance is not encouraging, there are still plenty of future catalysts for growth.
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