BNB Reaches New Heights but Faces Correction
BNB (BNB), the native token of the BNB Chain, reached an all-time high of $723 on June 6, but quickly corrected down to $705. Despite this correction, BNB has accumulated an impressive 19% gain in the first six days of June, vastly surpassing the 4.2% gain seen across the total crypto market during the same period. Traders are now questioning the sustainability of this rally and looking for indicators that might support further bullish momentum for the BNB price.
Impact of Binance Founder’s Incarceration
The timing of the BNB rally is particularly surprising given that Binance exchange’s founder and former CEO, Changpeng “CZ” Zhao, was reportedly moved to a federal prison in California on June 1 to begin serving his four-month sentence for charges related to money laundering. While CZ’s fate was largely expected following the court sentencing announced on April 30, his incarceration significantly limits any interference in Binance’s strategy and administration.
BNB’s Market Capitalization and Competitor Comparison
Regardless of the rationale behind the price surge, BNB’s current $108 billion market capitalization represents a 37% premium over competitor Solana (SOL) at $79 billion. It’s worth exploring whether the ecosystems of these two tokens justify this valuation difference. Part of BNB’s valuation comes from the discounts offered at Binance services and access to exclusive offers such as Binance Launchpad.
Comparing BNB Chain’s activity with that of the decentralized applications (DApps) leader Ethereum (ETH) also provides insight into whether the BNB rally above $710 is sustainable. However, comparing activity across different chains can be tricky due to the low fees on BNB Chain, which are made possible by its semi-centralized nature and may lead to easier data manipulation.
BNB Futures Open Interest Surpasses $1 Billion
Some analysts have suggested that the BNB rally was largely fueled by excessive leverage from buyers using derivatives, potentially driven by FOMO traders using excessive leverage on the buy side. However, evidence contradicts this theory, which gained momentum after BNB futures open interest broke above $1 billion for the first time ever on June 6.
While the futures open interest measures the total number of aggregate contracts available, it does not provide an indication of whether more leverage is being demanded from buyers (longs) or sellers (shorts). Every derivatives contract requires a buyer and a seller of the exact same size and price. Therefore, one should not assume that the 18% rally in six days was fueled by derivatives markets solely based on this data.
To assess the appetite of traders, one should analyze perpetual futures, also known as inverse swaps. These contracts incorporate an embedded rate recalculated every eight hours to compensate for leverage demand imbalances. A positive rate indicates a preference for leverage being utilized by buyers.
Note how the funding rate has stayed below 0.03% during the past six days, which is equivalent to 0.6% per week and is not considered expensive for most traders. As a comparison, the current 0.2% weekly funding rate for BNB is in line with Bitcoin (BTC) and lower than SOL, which is presently at 0.5%. Consequently, there is no evidence that excessive leverage using BNB futures triggered the recent rally above $710.
BNB Chain Activity Shows Strength
In terms of DApps activity, BNB Chain remains a top 3 contender in terms of volumes, while direct competitor Solana remains distant from the leaderboard.
The initial analysis of DApps activity strongly favors BNB, as data from the past seven days shows a 23% surge in volumes, while almost every other competing blockchain experienced a contraction. However, BNB Chain’s relatively stable active addresses engaging with its DApps does raise some questions about the effective growth in the number of users. Moreover, BNB Chain’s $6 billion seven-day volume is 85% lower than Ethereum’s $40.5 billion activity during the same period.
Conclusion: Uncertainty Over Further Price Gains
While BNB on-chain and derivatives data does not flash any warning signs, it also does not provide any indication that further upside is justified, especially when considering the uncertainty surrounding Binance exchange’s ability to sustain its leadership given that CZ is now in custody.
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