Here’s why Binance Coin is down 33% from its all-time high

Binance Coin (BNB) holders enjoyed a 1,760% rally from $37 to $692 between January and May 2021, but as is customary in crypto, this rise was followed by a correction 69% two weeks later.

From there, it was a bit difficult to regain investor confidence and BNB failed to produce another all-time high in November, even though the overall cryptocurrency market capitalization peaked at 3 trillion. of dollars.

Binance Coin / USDT at Binance. Source: Trading View

Besides being down 33% from its all-time high, BNB investors have other reasons to wonder if 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 went lower on January 10

Unlike regular monthly contracts, perpetual futures prices are very similar to regular spot exchanges. This makes the process much easier for retail traders, as they no longer need to calculate the futures premium or manually roll over positions close to expiry.

The funding rate allows this magic to happen, and it is charged to longs (buyers) when they demand more leverage. However, when the situation is reversed and the shorts (sellers) are overleveraged, the funding rate becomes negative and they are the ones who pay the costs.

BNB 8-Hour USDT/USD Margin Futures Funding Rate. Source: Coinglass.com

Notice how the funding rate on BNB futures was mostly flat between Dec. 15 and Jan. 10, but then quickly dropped to -0.13%. This rate is equivalent to 2.8% per week, a relatively high cost for shorts (sellers) to hold their positions. The move came as BNB tested support at $410, its lowest price in 90 days.

Excessive premium compared to competing blockchains

The reason behind Binance’s short could be the excessive premium over competing smart contract chains. For example, BNB’s $78.2 billion market cap is 80% larger than Solana’s (SOL) $43.3 billion. Additionally, the premium to Terra (LUNA)’s $28.2 billion is 178%, and 275% to Avalanche’s (AVAX) $20.8 billion. Other factors are at play, Binance Smart Chain’s total value locked (TVL) stagnated at $15 billion.

Binance TVL channel in USD. Source: DéfiLlama.com

For comparison, Terra’s TVL went from $9 billion to $19 billion in three months, while Avalanche went from $6.5 billion to $11.6 billion over the same period. period. The competition has far outpaced Binance Chain apps, except for the number of active users on the decentralized exchange PancakeSwap.

To properly assess whether Binance Smart Chain usage has peaked, one needs to analyze network activity. Some decentralized applications (dApps) like games, social marketplaces and NFTs require little total value locked (TVL) deposited on smart contracts.

Daily Binace Smart Chain transactions per day. Source: bscscan.com

Data shows that daily transactions on BSC peaked at over 15 million on November 25 and recently averaged 6.5 million per day. It should also be noted that Binance Chain’s main competitor, Ethereum, is struggling with average transaction fees of $40 or more, which creates the perfect scenario for competing chains.

Despite this opportunity to capture market share, Binance Smart Chain appears to have stagnated in terms of daily transactions and TVL, both of which are signs of growth and adoption.

Binance’s lead position on derivatives could be called into question

Competition for Binance’s leadership position could be in question as Coinbase, the largest US crypto exchange, plans to start offering derivatives trading after the acquisition of FairX.

Additionally, the FTX exchange raised $1.32 billion from private investors and FTX US completed its acquisition of crypto options exchange LedgerX on October 25. This solidifies its intention to offer derivatives contracts to US investors.

Chances are that Binance will retain its leadership against Coinbase and FTX derivatives given that it has a first-mover advantage. Additionally, Binance launched a $1 billion development fund on October 12 to expand the capabilities of the Binance Smart Chain ecosystem.

Overvalued or not, strong fundamentals are supporting the third-largest cryptocurrency and while near-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 conduct your own research when making a decision.

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