The price of Binance Coin (BNB) has seen a significant drop of 24.5% over the past 90 days, underperforming the overall altcoin market. This decline can be attributed to ongoing regulatory actions and concerning data from derivatives contracts.
One of the key factors behind BNB’s bearish price action is the lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against Binance exchange and its CEO Changpeng ‘CZ’ Zhao. The decoupling of BNB’s price coincided with this event, indicating its influence on market sentiment.
Analyzing the derivatives market provides valuable insights into the positions of large traders and market makers. Examining the open interest in BNB futures contracts reveals the demand for leverage during this period of underperformance. Despite the price rally on July 11, it is essential to determine if it was supported by improved sentiment or balanced demand for leverage through BNB derivatives.
While price remains an essential metric for understanding trader sentiment, it does not capture all possibilities. BNB had outperformed the altcoin market in 2022 but has now experienced a reversion to the mean, suggesting that investors no longer perceive the premium as justified.
Notably, the open interest in BNB futures contracts has surged to its highest level in 18 months, reaching $476 million. However, this does not necessarily indicate bullish sentiment among professional investors. The futures annualized premium, which measures the difference between longer-term futures contracts and current spot market levels, is currently negative. A negative premium suggests that short sellers are paying to maintain their positions, contributing to a bearish market sentiment.
Short positions on BNB futures contracts may have been used to clear out spot order books and potentially trigger price pumps, although establishing causation and correlation is challenging. Other potential explanations for the significant futures premium include lock-up periods or restrictions imposed on BNB holders, seeking to reduce exposure.
The derivatives data points to an increased appetite for leverage through futures contracts, particularly among short sellers, given the negative premium. This downward pressure on BNB’s price is likely to persist as long as the futures premium remains negative, indicating a lack of bullish momentum.
It is important to note that this article does not provide legal or investment advice. The views expressed here are solely those of the author and do not necessarily reflect the opinions of Cointelegraph.