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

Since then, it has been somewhat difficult to regain investor confidence and BNB has failed to set another all-time high (ATH) in November despite the total crypto market cap peaking at $3 trillion.

BNB/USDT price chart | Source: TradingView

Aside from the 33% decline vs. ATH, BNB investors have other reasons to wonder if the current $471 level is sustainable. Especially since traders have recently been paying up to 3% a week to short futures contracts and bet on falling prices.

Traders turn bearish on January 10th

Unlike regular monthly contracts, perpetual contracts are priced very similar to regular spot exchanges, making it easy for retail traders as they no longer need to calculate premiums to manually reverse futures contracts or near-expiry positions.

The funding rate makes this magic possible and will be charged by those founding as long as they need more leverage. However, when the situation reverses and the short traders use excessive leverage, the funding rate becomes negative and they become the payers.

Funding rate BNB futures contract 8 hour frame | Source: Coinglass.com

Note that the funding rate for BNB futures was mostly flat between December 15 and January 10, but then quickly turned to -0.13%. This rate equates to 2.8% per week, a relatively steep price for those setting short orders to hold their positions. The move came as BNB tested the $410 support, its lowest price in 90 days.

Rewards outperform competing blockchains

The reason behind the establishment of short BNB orders by investors could be that the premium is too high compared to competing smart contract chains. For example, BNB’s $78.2 billion market cap is 80% higher than Solana’s $43.3 billion (SOL). Additionally, the premium is 178% versus Terra’s (LUNA) $28.2 billion and 275% versus Avalanche’s (AVAX) $20.8 billion. Other factors could also be due to Binance Smart Chain (BSC) total value (TVL) remaining flat at $14.6 billion.

TVL on BSC | Source: DefiLlama.com

In comparison, Terra’s TVL grew from $9 billion to $19 billion in three months, while Avalanche’s TVL grew from $6.5 billion to $11.6 billion over the same period. The competition has overtaken many of BSC’s applications, with the exception of the number of active users on the decentralized exchange (DEX) PancakeSwap.

To accurately assess whether BSC usage has peaked, investors need to analyze the performance of the network. Some decentralized applications (dApps) like games, social and NFT marketplaces require a bit of TVL to be escrowed on smart contracts.

Daily transactions on BSC | Source: bscscan.com

Data shows that daily trading on BSC reached an ATH of over 15 million on November 25 and recently averaged 6.5 million per day.

It should also be noted that BSC’s main competitor, Ethereum, struggles with average transaction fees of $40 or more, creating the perfect scenario for competing chains.

Despite the potential market share opportunities, BSC in daily trading and TVL appear to have stabilized, both signs of growth and adoption.

Binance’s leading position in the derivatives market could be beaten

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

Additionally, futures exchange FTX has raised $1.32 billion from retail investors, and FTX US completed the acquisition of crypto options exchange LedgerX on Oct. 25, boosting plans to offer derivatives contracts to US investors.

There is a good chance that Binance will retain the lead over Coinbase and FTX as it has the advantage of being first. Additionally, on Oct. 12, Binance launched a $1 billion development fund to expand the capabilities of the BSC ecosystem.

Overvalued or not, solid fundamentals support BNB and while near-term price action is not very hopeful, there are many future catalysts for growth.

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