BNB Token Faces Bearish Sentiment as Perpetual Futures Signal Heavy Shorting
Traders in the perpetual futures market tied to the BNB token are displaying a bearish outlook as the cryptocurrency faces a challenging environment on multiple fronts. Data from Coinglass reveals that open interest and volume-weighted funding rates in perpetual futures have dropped to -0.18%, the lowest since late April. This indicates that short positions, which profit from price drops, are dominant, with short sellers willing to pay longs to maintain their bearish bets. Funding rates are charged every eight hours.
According to Huf, the pseudonymous co-founder of Pear Protocol, "BNB is being heavily shorted," pointing to the deeply negative funding rates. Huf attributes the worsened sentiment to recent high-profile staff departures, inconsistencies related to BCH withdrawals from Binance.US, and the pending Department of Justice (DOJ) case against Binance's CEO, Changpeng "CZ" Zhao. BNB is the token associated with the BNB ecosystem created by Binance, and its fortunes are often intertwined with the performance of the exchange.
Binance, facing regulatory pressures globally, has recently laid off over 1,000 employees. Additionally, three senior officials left their positions earlier this month, citing CZ's handling of the DOJ investigation into possible money laundering as their reason for departure. CZ attempted to ease market concerns over the weekend, characterizing the recent layoffs as involuntary terminations and dismissing the layoff figure reported by the media as FUD (fear, uncertainty, and doubt). He stated in a tweet on Saturday, "We are still hiring."
Despite CZ's reassurances, the market remains apprehensive, as evidenced by the deeply negative funding rates, leading some observers to anticipate further negative developments. Pseudonymous trader Skew tweeted on Sunday, "24h APR -92% ~ Typically, these readings precede some bad news for Binance. Wonder what's coming?"
The negative funding rate also indicates that traders are still evaluating whether the recent U.S. court ruling in favor of Ripple would aid Binance in its battle against the U.S. Securities and Exchange Commission (SEC). In a highly anticipated ruling, the District Court for the Southern District of New York determined that XRP is not a security when offered to individuals through centralized exchanges but would be treated as one when offered to institutional investors. In early June, the SEC charged both Binance and Coinbase for offering unregistered securities on their platforms.
There is potential for a short squeeze, which refers to a rapid upward price movement driven by bearish traders closing their positions. For a short squeeze to occur, the market needs to exhibit higher-than-usual bearish activity, as is evident in BNB perpetual futures. In such scenarios, even a slight price increase can trigger short sellers to exit their positions, thereby further driving up prices.
According to Skew, a move above $265 could prompt some short covering, stating, "BNB [looks] Weak as long as the price trades below $265. Once it surpasses that level, I could see a short covering rally. Otherwise, it may eventually dip below the monthly range low of $218."
The bearish sentiment reflected in the perpetual futures market suggests that BNB token faces ongoing challenges and uncertainty. Traders will closely monitor market dynamics and regulatory developments as they assess the future direction of BNB.