Because of this, Binance Coin is down 33% from its all-time high

Binance Coin (BNB) holders saw a 1,760% rally from $37 to $692 between January and May 2021, but as is usual with cryptocurrencies, that rally was followed by a 69% correction two weeks later.

From there, it was a bit difficult to regain investor confidence and BNB failed to set another all-time high in November despite the cryptocurrency’s total market cap peaking at $3 trillion.

BNB/USDT chart. Source: TradingView

Aside from BNB being 33% off its all-time high, BNB investors have other reasons to wonder if the current price of $465 is sustainable. Especially as traders recently paid up to 3% weekly to keep short futures positions open and bet on the downside.

Traders turned bearish on June 10th

Because of this, Binance Coin is down 33% from its all-time high
Because of this, Binance Coin is down 33% from its all-time high

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 have to calculate the futures premium or manually roll over positions just before expiration.

The funding fee makes this magic possible, and longs (buyers) are charged when they ask for more leverage. However, when the situation reverses and the shorts (sellers) become overly leveraged, the funding rate becomes negative and they are the ones paying the rate.

BNB Margin Futures 8 hour funding rate. Source: Coinglass.com

Note that the BNB futures funding rate was mostly flat between December 15th and January 10th, but then quickly rose to -0.13%. This rate equates to 2.8% per week, a relatively high price for shorts (sellers) to keep their positions open. The move came as BNB was testing support at $410, its lowest price in 90 days.

Excessive premium over competing blockchain networks

The reason for the sale of Binance could be the inflated premium compared to competing smart contract chains. For example, BNB’s $78.2 billion market cap is 80% higher than Solana (SOL)’s $43.3 billion. Furthermore, the premium to $28.2 billion Terra ((LUNA) is 178% and 275% to $20.8 billion Avalanche (AVAX). Other factors that could play a role could also include the value of Binance Smart Chain Total Locked (TVL), which is stuck at $15 billion.

TVL to USD on Binance Chain. Source: DefiLlama.com

For comparison, Terra’s TVL grew from $9 billion to $19 billion in three months, while Avalanche grew from $6.5 billion to $11.6 billion over the same period. The competition has far outperformed Binance Chain’s apps, with the exception of 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) like games, social networks and NFT marketplaces require a small total value (TVL) deposited in smart contracts.

Binance Smarth Chain daily transactions. Source: bscscan.com

The data shows that daily transactions on the BSC peaked at 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, struggles with average transaction fees of around $40 or more, creating the perfect scenario for competing chains.

Despite this opportunity to gain 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 leading position in the derivatives sector could be controversial

Competition for Binance’s leadership position could be challenged as Coinbase, the largest cryptocurrency exchange in the United States, plans to start derivatives trading after acquiring FairX.

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

There is a good chance that Binance will maintain its lead over Coinbase and FTX derivatives considering it has the first advantage of its kind. Additionally, on Oct. 12, Binance launched a $1 billion development fund to expand the capabilities of the Binance Smath Chain ecosystem.

Overvalued or not, solid fundamentals support the third-largest cryptocurrency on the market, and while near-term price action is not encouraging, there are still plenty of future catalysts for growth.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and every operation involves risks. You must do your own research when making a decision.

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