BNB Token Is Being Heavily Shorted, Perpetual Futures Show

Funding rates in perpetual futures tied to BNB are most negative in nearly three months.

AccessTimeIconJul 17, 2023 at 7:28 a.m. UTC
Updated Jul 17, 2023 at 10:22 a.m. UTC

Traders in the perpetual futures market tied to the BNB token are leaning bearish as the embattled cryptocurrency faces a challenging environment on multiple fronts.

Data tracked by Coinglass show open interest and volume-weighted funding rates in perpetual futures have slipped to -0.18%, the lowest since late April. It shows shorts, or positions that profit from a price drop, are dominant, and are willing to pay longs to keep their bearish bets open. Funding rates are charged every eight hours.

"BNB is being heavily shorted," Pear Protocol's pseudonymous co-founder Huf, said, referring to the deeply negative funding rates.

"The sentiment has worsened due to the recent high-profile staff exits, inconsistencies related to BCH withdrawals from Binance.US and the pending Department of Justice case against Binance's CEO Changpeng "CZ" Zhao," Huf added. BNB is the token of the BNB ecosystem, which was created by Binance, and crypto traders generally link the token with the exchange's fortunes.

Binance, facing regulatory pressures worldwide, has laid off 1,000 or more employees in recent weeks. Early this month, three senior officials left their roles, citing CZ's handling of the DOJ investigation over possible money laundering as the reason for their exits.

Over the weekend, CZ tried to calm market nerves, calling recent layoffs involuntary terminations and dismissing the layoff figure reported by media as FUD (fear, uncertainty and doubt).

"We are still hiring," CZ announced in a tweet on Saturday.

Still, the market remains nervous, as evident from the deeply negative funding rates, with some observers fearing more bad news ahead.

"24h APR -92% ~ Typically, these readings precede some bad news for Binance Wonder what's coming?" pseudonymous trader Skew tweeted on Sunday.

The negative funding rate also shows traders are still determining whether the recent U.S. court's ruling favoring Ripple would help Binance in its fight against the U.S. Securities and Exchange Commission.

Last week, in a highly anticipated ruling in the SEC's case against Ripple Labs for violating securities law through XRP sales, the District Court for the Southern District of New York ruled that XRP is not a security when offered to individuals through centralized exchanges, adding that it will be treated as one when offered to institutional investors. In early June, the SEC charged Binance and Coinbase for offering unregistered securities over their platforms.

Potential for short squeeze

A short squeeze is a rapid move higher driven by bears abandoning their bearish bets. For a short squeeze to occur, the market needs to have a higher-than-usual bearish activity, as is the case in BNB perpetual futures. In such situations, a minor price bump can send bears or short sellers running to square off their positions, which, in turn, drives prices further up.

Per Skew, a move above $265 could see some short covering.

"BNB [looks] Weak as long as price trades below $265, back above there, I could see some illiquid short covering rally. Else eventually below the monthly range low $218," Skew tweeted.

At press time, BNB traded at $242, according to CoinDesk data.

(10:21 UTC): Updates the third para with Pear Protocol founder's pseudonymous identity.

Edited by Parikshit Mishra.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.

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