Heres why Binance Coin is 33% down from its all-time high

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

From there, its been a bit of a rough patch to regain investors' confidence and BNB failed to produce another all-time high in November even though the aggregate cryptocurrency market capitalization peaked at $3 trillion.

Binance Coin / USDT at Binance. Source: TradingView

In addition to being 33% down from its all-time high, BNB investors have other reasons to question whether the current $465 price is sustainable. Especially since traders were recently paying up to 3% per week to keep futures' short positions open, betting on the downside.

Traders flipped bearish on January 10

Unlike regular monthly contracts, perpetual futures prices are very similar to those at regular spot exchanges. This makes the process for retail traders a lot easier because they no longer need to calculate the futures premium or manually roll over positions near expiry.

The funding rate allows this magic to occur, and it is charged from longs (buyers) when they demand more leverage. However, when the situation is reversed and shorts (sellers) are over-leveraged, the funding rate goes negative and they become the ones paying the fee.

BNB 8-hour USDT/USD margin futures funding rate. Source: Coinglass.com

Notice how the funding rate on BNB futures was mostly flat between Dec. 15 and Jan. 10, but then quickly shifted to negative 0.13%. This rate is equivalent to 2.8% per week, a relatively high cost for shorts (sellers) to keep their positions. The movement happened while BNB tested the $410 support, its lowest price in 90 days.

Excessive premium versus competing blockchains

The reason behind the Binance short could be the excessive premium versus competing smart-contract chains. For example, BNB‘s $78.2 billion market capitalization is 80% higher than Solana’s (SOL) $43.3 billion. Moreover, the premium versus Terra‘s (LUNA) $28.2 billion is 178%, and 275% compared to Avalanche’s (AVAX) $20.8 billion. Other factors are in play could also be Binance Smart Chain's total value locked (TVL) stagnated at $15 billion.

For comparison, Terra's TVL increased from $9 billion to $19 billion in three months, while Avalanche grew from $6.5 billion to $11.6 billion in the same period. The competition has vastly surpassed Binance Chain's applications, except for the number of active users on PancakeSwap decentralized exchange.

To correctly assess whether Binance Smart Chain use has topped, one must analyze the network's activity. Some decentralized applications (dApps) like games, social, and NFT marketplaces require little total value locked (TVL) deposited on smart contracts.