BNB crossed $700. Is there a limit to this parade?

BNB (BNB), the parent of the BNB chain, hit a high of $723 on June 6 but quickly corrected to $705. Despite this correction, BNB has accumulated an impressive 19% gain in the first six days of June, which is much higher than the 4.2% gain seen in the entire crypto market during the same period. Traders are now questioning the sustainability of this rally and are looking for indicators that could support further bullishness for the BNB price.

The jailed Binance founder is a net negative for the price of BNB

The timing of BNB's support is particularly surprising given that Binance Exchange founder and former CEO Changpeng “CZ” Zhao was transferred to a federal prison in California on June 1 to begin a four-month sentence on money laundering charges. . While CZ's fate is largely expected after the court's sentencing announced on April 30, his arrest will greatly limit any interference in Binance's strategy and management.

Regardless of the reason behind the price increase, BNB's current market capitalization of $108 billion represents a 37% premium over competitor Solana (SOL) at $79 billion. It is worth exploring whether the ecosystems of these two tokens justify this difference in valuation. However, part of BNB's valuation comes from the discounts offered by Binance services and access to special offers like the Binance Launchpad.

Comparing BNB Chain's activity with decentralized applications (DApps) leader Ethereum (ETH) gives insight into the continuation of BNB's rally above $710. However, due to the BNB Chain's low fees, it can be difficult to compare activity on different chains, which is partly made possible by its centralized nature and can lead to easier data management.

BNB futures are open with more than $1 billion in interest breaks.

Some analysts believe that BNB's rally was largely fueled by excessive leverage from buyers using derivatives, fueled by excessive leverage on the buying side by FOMO traders. However, the evidence contradicts this theory, with BNB futures open interest rising above $1 billion for the first time on June 6.

While futures open interest measures the total number of contracts available, it does not provide an indication of whether more leverage is being demanded from buyers (longs) or sellers (shorts). Each derivatives contract requires a buyer and seller to specify a valid amount and price. Therefore, it should not be assumed that the 18 percent rally in six days was triggered by this information alone in the primary markets.

In order to assess the appetite of traders, one must analyze the eternal futures, also known as the inverse exchange rate. These contracts include an embedded price that is recalculated every eight hours to compensate for demand imbalances. A positive rate indicates a preference for leverage by buyers.

Note that the funding rate has remained below 0.03% over the past six days, which equates 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 currently at 0.5%. Therefore, there is no evidence that excessive leverage using BNB futures triggered the recent rally above $710.

Related: Binance restores crypto purchases with MasterCard

BNB chain activity shows strength, but not enough to justify further price gains.

In terms of DApps activity, BNB Chain remains a top 3 contender by volumes, while its direct competitor Solana has dropped off the leaderboard.

Initial analysis of DApps activity strongly favors BNB, as data from the past seven days shows a 23% increase in volumes. However, BNB Chain's relatively stable active addresses raise some questions about the effective growth of the number of users engaging with DApps. Moreover, BNB Chain's $6 billion seven-day volume is 85% lower than Ethereum's $40.5 billion movement.

Although BNB's on-chain and derivatives data does not flash any warning signs, it does not give any indication that further volatility is warranted, especially given the uncertainty surrounding CZ's ability to maintain its leadership on the Binance Exchange.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.