BNB Token Peaks Despite Binance Founder's Incarceration; Rally Sustainability in Question
Summary:
On June 6, BNB, the BNB Chain's native token, peaked at $723, surpassing total crypto market gains and leading traders to speculate on the sustainability of this rally. Despite the imprisonment of Binance's founder, Changpeng “CZ” Zhao, for money laundering charges, BNB's market capitalization still exceeds competitor Solana by 37%. The valuation differences and BNB's future developments are examined, along with a comparative analysis of BNB's performance with Ethereum. The article suggests that while no alarming signs are present in BNB data, further upside may not be justified given the uncertainties surrounding Binance due to CZ's incarceration.
June 6 saw the native token of BNB Chain, BNB, hitting an unprecedented peak of $723 before a quick downward adjustment to $705. Although this correction has taken place, BNB has experienced an impressive rise of 19% in just six days in June, dramatically outpacing the total crypto market's increase of 4.2% over the same time frame. The sustainability of this rally is now being queried by traders who are on the lookout for signs that could predict maintained bullish momentum for BNB's price.
The surge in BNB's price coincides unexpectedly with the incarceration of Changpeng “CZ” Zhao, the founder and ex-CEO of Binance exchange, who began his four-month prison sentence in a federal prison in California on June 1. The imprisonment, which comes in the face of money laundering charges, will severely restrict CZ's involvement in the conduct and steering of Binance.
Despite this, BNB's market capitalization of $108 billion is 37% higher than the rival Solana (SOL), currently valued at $79 billion. The discrepancy between the two could be justified by examining their respective ecosystems, however, BNB's valuation is also closely tied to benefits associated with Binance's services such as the Binance Launchpad and rewards offered at the Binance services.
A comparison of BNB Chain's performance versus the decentralized applications (DApps) frontrunner Ethereum (ETH) can also provide us some clues about whether BNB's rally above $710 have longevity.
However, assessing activity across different chains can be somewhat deceptive due to the reduced fees on BNB Chain, which is facilitated by its somewhat centralized nature.
Some observers attribute the BNB rally largely to excessive leverage by buyers employing derivatives, a behavior potentially spurred by a fear of missing out. But, in contradiction to this line of thinking is the fact that BNB futures open interest surpassed $1 billion for the first time ever on June 6.
In fact, the total number of all contracts available, as captured by futures open interest, does not indicate whether the demand was skewed more towards buyers (longs) or sellers (shorts). Thus, the assumption that the 18% rally in six days was primarily driven by derivatives markets due to this data is not entirely valid.
To gauge buyers' interests, one should evaluate perpetual futures or inverse swaps. These contracts incorporate an embedded rate that is recalculated every eight hours to balance any imbalances in leverage demand.
Concerning DApps activity, BNB Chain ranks in the top three in terms of volume sizes, while its direct competitor, Solana, doesn’t feature prominently in the rankings. BNB Chain commands a seven-day volume of $6 billion, 85% less than Ethereum's $40.5 billion activity over the same timeframe.
The current on-chain and derivatives data for BNB do not sound an alarm; however, they also do not justify a further upward trend, particularly given the uncertainties regarding Binance exchange's capacity to maintain its leadership since CZ is now behind bars.
The opinions and views expressed herein are solely those of the author and do not necessarily represent or reflect the views and opinions of Cointelegraph. The article serves informational purposes only and should not be misconstrued as legal or investment advice.
Published At
6/6/2024 11:00:17 PM
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