Binance Coin (bnb) enjoyed a 1,760% rally from $37 to $692 between January and May 2021, but as usual for cryptocurrencies, this surge 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 total cryptocurrency market capitalization peaking at $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% per week to keep short futures positions open, betting on the downside.
Traders turned bearish on Jan 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 need to calculate the futures premium or manually roll over positions near expiration.
The funding fee allows this magic to happen, and long buyers are charged when they demand more leverage. However, when the situation is reversed and short sellers are over-leveraged, the funding rate turns negative and they become the fee payers.
Notice how the BNB futures funding rate was virtually flat between Dec 15 and Jan 10, but then quickly flipped to negative 0.13%. This rate equates to 2.8% per week, a relatively high cost for shorts (sellers) to hold their positions. The move occurred as BNB tested support at $410, its lowest price in 90 days.
Excessive premium against competing blockchains
The reason behind Binance's short could be the excessive premium against competing smart contract chains. For example, BNB's $78.2 billion market capitalization is 80% higher than Solana's (SUN) $43.3 billion. Also, the premium versus Terra's (MOON) $28.2 billion is 178% and 275% compared to Avalanche (AVAX) $20.8 billion. Other factors at play could also be that Binance Smart Chain's Total Value Locked (TVL) has stalled 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 PancakeSwap decentralized exchange.
To properly assess whether Binance Smart Chain usage has exceeded, network activity must be analyzed. Some decentralized applications (dApps), such as games, social networks, and NFT marketplaces, require a small Total Value Locked (TVL) deposited in smart contracts.
The data shows that daily transactions on BSC exceeded 15 million on November 25 and have recently averaged 6.5 million per day. It should also be noted that Binance Chain's main competitor, Ethereum, has been struggling with average transaction fees of $40 or more, creating the perfect scenario for competing chains.
Despite this opportunity to seize market share, Binance Smart Chain seems to have stagnated in terms of daily transactions and TVL, both of which are signs of growth and adoption.
Binance's Leading Derivatives Position Could Be Challenged
Competition for Binance's leadership position could be challenged as America's largest crypto exchange Coinbase plans to start offering derivatives trading after the acquisition of FairX.
Also, the FTX exchange raised $1.32 billion from private investors and FTX US finalized its acquisition of crypto options exchange LedgerX on Oct. 25. This solidifies its plans to offer derivative contracts for US investors.
There is a good chance that Binance will maintain its lead against derivatives Coinbase and FTX, considering it has first mover advantage. Additionally, Binance launched a billion dollar development fund on October 12 to expand the capabilities of the Binance Smart Chain ecosystem.
Overvalued or not, strong fundamentals support the third largest cryptocurrency and while short-term price performance is not promising, there are still plenty of future catalysts for growth.
The views and opinions expressed herein are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.
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