BNB (BNB), the native token of the BNB chain, hit an all-time high of $723 on June 6, but quickly corrected to $705. Despite these adjustments, BNB posted an impressive 19% gain in the first six days of June, far surpassing the 4.2% gain seen in the overall cryptocurrency market during the same period. Traders are now questioning the sustainability of this rally and looking for indicators that could support further bullish momentum in the BNB price.
Binance Founder in Jail Negatively Affects BNB Price
The timing of the BNB rally is particularly surprising as Binance Exchange founder and former CEO Changpeng “CZ” Zhao was reportedly transferred to a federal prison in California on June 1 to begin serving a four-month sentence on money laundering-related charges. . Although CZ’s fate was largely anticipated following the court sentence announced on April 30, his imprisonment significantly limits his interference with Binance’s strategy and administration.
Regardless of the reason for the price surge, BNB’s current market capitalization of $108 billion represents a 37% premium over its competitor Solana (SOL)’s $79 billion. It is worth looking into whether the ecosystems of these two tokens justify this difference in valuation. However, part of BNB’s valuation comes from the discounts available on Binance services and access to exclusive benefits such as Binance Launchpad.
Comparing the activity of the BNB chain to that of decentralized applications (DApps) leader Ethereum (ETH) can provide insight into whether the BNB rally above $710 is sustainable. However, due to the BNB chain’s low fees, comparing activity across multiple chains can be tricky. This is possible due to its decentralized nature and can make data manipulation easier.
BNB futures open interest exceeds $1 billion.
Some analysts have suggested that the BNB rally was largely fueled by excessive leverage by 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 surpassed $1 billion for the first time on June 6.
Futures open interest measures the total number of contracts available, but does not provide an indication of whether more leverage is required for buyers (buy) or sellers (sell). All derivatives contracts require buyers and sellers of exactly the same size and price. Therefore, one should not assume that the derivatives market triggered an 18% rally in 6 days based on this data alone.
Assessing a trader’s preferences requires analyzing perpetual futures, also known as inverse swaps. These contracts contain an implied interest rate that is recalculated every eight hours to compensate for leverage demand imbalances. A positive ratio indicates that buyers prefer to utilize leverage.
Notice how the funding rate has remained below 0.03% for the past 6 days. This equates to 0.6% per share and would not be considered expensive by most traders. In comparison, BNB’s current weekly funding rate of 0.2% is similar to Bitcoin (BTC) and lower than SOL, which is currently 0.5%. As a result, there is no evidence that excessive leverage using BNB futures triggered the recent rally above $710.
Related: Binance Resumes Cryptocurrency Purchases with Mastercard
BNB chain activity is strong, but not enough to justify further price increases.
In terms of DApp activity, BNB Chain remains a top three contender in terms of trading volume, while its direct competitor Solana is still far down the leaderboard.
Initial analysis of DApps activity strongly favors BNB, as data from the last 7 days shows a 23% surge in trading volume, while almost all competing blockchains have experienced declines. However, the relatively stable active addresses on the BNB chain associated with DApps raise some questions about the effective growth of the number of users. Moreover, BNB Chain’s seven-day trading volume of $6 billion is 85% less than Ethereum’s $40.5 billion activity over the same period.
While BNB on-chain and derivatives data does not indicate any warning signs, it does not provide any indication that further upside is justified, especially given the uncertainty surrounding the Binance exchange’s ability to maintain its leadership with CZ currently in custody.
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.