Binance Coin, the native cryptocurrency of Binance Smart Chain, has been surging with a massive uptick in transaction volume.
Binance Coin (BNB), the native cryptocurrency of Binance Smart Chain and top digital asset exchange Binance, is starting to close in on Ethereum (ETH) in market capitalization.
As of April 12, BNB is valued at $87 billion at the price of just under $600. The valuation of Ethereum is hovering at around $246 billion, which is 2.8 fold larger than that of Binance Coin.
— Joe Grech (@JoeBGrech) April 12, 2021
The technical momentum of BNB has been so strong that it briefly surpassed the volume of the BTC/USDT pair on Binance.
This trend is significant because USDT is the biggest stablecoin in the global market and the BTC/USDT pair is one of the most liquid trading pairs in crypto.
Why is Binance Coin surging so hard?
Binance Coin has been rising due to the three key reasons: an overall uptick in the popularity of Binance Smart Chain, strong technical momentum, and the gap between BSC and Ethereum projects.
Binance Smart Chain transaction volume. Source: BSCScan.io
In recent weeks, the transaction volume on Binance Smart Chain has tripled the volume of the Ethereum blockchain.
Particularly in Southeast Asia, the usage of Binance Smart Chain has been rising, according to Coin98, the biggest venture capital firm in Vietnam that is building a DeFi ecosystem targeted at Asia.
Considering that the price of BNB was much lower than Ethereum until late March, this discrepancy between BNB and ETH likely made BNB a compelling trade.
There is also a big gap in valuations between the Ethereum DeFi ecosystem and Binance Smart Chain, which has been fueling a large portion of the demand for BSC projects.
This has caused the value of BNB to rapidly rise over the past two weeks while ETH has been relatively stable at just over $2,000.
A journalist who covers crypto in China known as “Wu Blockchain” explained:
“BNB broke through an astonishing $600, but Ethereum’s Fees fell to its lowest point in a month. Although the transaction volume of BSC is 3x that of Ethereum, the two are not in a competitive relationship. The top 10 addresses of BNB hold more than 88%, and Eth is 20%. The future of Ethereum depends on the upgrade of EIP-1559 and 2.0. The only two things Binance needs to worry about are the government suppression and hackers.”
Traders foresee BNB to undergo a more explosive rally in the foreseeable future if it breaks out against Bitcoin.
Kaleo, a pseudonymous cryptocurrency trader, said:
“$BNB breaking above this level on the $BTC pair could lead to the type of explosive momentum needed to actually close in on $1,000.”BSC/BTC 1-day price chart (Binance). Source: TradingView.com, KaleoWill the capital rotate back into Ethereum?
However, Kelvin Koh, the managing partner at Spartan Group, one of the largest DeFi-focused funds in Asia, said that for now, he expects the capital to rotate back into Ethereum as BSC projects near the valuation of ETH equivalents.
He emphasized that there is a huge valuation gap between BSC and ETH projects. This gap could be making BSC projects compelling to the market. He said:
“BSC is having its own DeFi summer….so much alpha to be discovered in BSC ($XVS, $CAKE). If you are wondering why Ethereum DeFi coins are lacklustre, its because of the huge valuation gap that still exists between the BSC coins and ETH equivalents. Until this gap closes, money isn’t rotating back to ETH DeFi coins.”
Here’s how Bitcoin’s intraday volatility complicates leverage trading
Derivatives exchanges offer up to 100x leverage, but traders must consider how Bitcoin’s intraday volatility increases their liquidation risk.
The crypto sector is in a bull market, and frequent evidence comes from anonymous traders who post their five-, six- and seven-figure investment returns as screenshots on Crypto Twitter.
This condition creates a FOMO-like situation where everyone gets greedy. The temptation to boost potential earnings by twenty times or more is often irresistible for most novice traders.
Today, almost every cryptocurrency exchange offers leveraged trading using derivatives. To enter these markets, a trader has to first deposit collateral (margin), which is usually a stablecoin or Bitcoin (BTC). However, unlike spot (regular) trading, the trader cannot withdraw from a futures market position until it has been closed.
These instruments have benefits and can improve a trader’s outcomes. However, those who often rely on incorrect information when trading futures contracts end up with heavy losses rather than profits.
The basics of derivatives
These leveraged futures contracts are synthetic, and it is even possible to short or place a bet on the downside. Leverage is the most appealing aspect of futures contracts, but it is worth noting that these instruments have long been used in stock markets, commodities, indexes, and foreign exchange (FX).
In traditional finance, traders measure daily price change by calculating the average closing price changes. This measure is widely used in every asset class, and it’s called volatility. However, for various reasons, this metric isn’t helpful for cryptocurrencies and can harm leverage traders.
Bitcoin 60-day USD volatility. Source: BuyBitcoinWorldwide
To be brief, the higher the volatility, the more often an asset price presents wild oscillations. Contrary to the expectation, moving up by 7% to 10% every day represents a low volatility indicator. This happens because the deviation from the mean is small, while random fluctuations between a negative 3% to a positive 3% present a much wider range.
Markets with very low volatility are perfect for leverage
Knowing the general range of how an asset oscillates is extremely important when opening leverage positions. Take the British Pound Sterling (GBP), for example, and one will notice that its volatility is usually below 1% as surprise aggressive daily price changes are unusual.
GBP currency 60-day USD volatility. Source: BuyBitcoinWorldwide
FX markets are relatively stable markets when compared with stocks and commodities. Therefore, some regulated brokers offer even 200x leverage, meaning a 0.5% move against the position would cause a forced liquidation.
For a cryptocurrency trader, the Swiss Franc’s (CHF) daily change versus the U.S. dollar would likely be seen as a stablecoin.
Swiss Franc (CHF) USD prices. Source: Investing.com
However, the 3.4% daily Bitcoin volatility hides a more dangerous price fluctuation. While measuring daily closing prices for traditional markets makes sense, cryptocurrencies trade non-stop. This difference potentially creates much wider movements within the same day, although the daily closing often masquerades it.
Bitcoin price low-high-close USD prices. Source: CoinMarketCap
The average change between the Bitcoin intraday high and low of the past 180 days is 6.5%. As shown above, these ‘intraday moves’ surpassed 10% on 25 occasions. Meaning, in reality, BTC price oscillations are much larger than expected for a 3.2% daily volatility asset.
20x leverage seems crazy considering Bitcoin’s daily moves
To put things into perspective, a 5% move in the wrong direction is enough to liquidate any 20x leveraged Bitcoin position. This data is clear evidence that traders should really consider risk and volatility when leverage-trading cryptocurrencies.
Fast profits are nice, but what is more important is being able to survive the usual daily price swings to hold on to those unrealized gains.
Although there’s not a magical number to set the best leverage for every trader, one must account for the effect of volatility when calculating liquidation risks. Those aiming to keep positions open for more than a couple of days, aiming for 15x or lower leverage, seem to be ‘reasonable.’
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Polkadot-centric derivatives exchange raises $6.4M in seed funding
The successful private investment round highlights growing conviction in the Polkadot ecosystem.
DTrade is planning to build the first derivatives exchange on Polkadot following a highly successful private investment round.
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Decentralized exchange dTrade is bringing derivatives trading to the Polkadot ecosystem after concluding a $6.4-million seed investment round, setting the stage for wider decentralized finance use cases on the developer network.
The private investment round was led by some of the biggest names in the blockchain venture capital world, including Three Arrows Capital and DeFiance. Polychain Capital, ParaFi Capital, Huobi, Mechanism Capital, Bixin Ventures, IOSG Ventures, Hypersphere Ventures and Fenbushi Capital also participated.
Several companies have also stepped up to support liquidity on dTrade, including Alameda Research, CMS Holdings, MGNR, Kronos and Wintermute.
As a decentralized exchange, dTrade allows for the trading of perpetual swaps and options with on-chain settlement. In theory, the platform can accommodate unlimited derivatives markets without custodial and counterparty risks. The trading platform is not available to United States-based traders.
“Derivatives are on track to become the largest market in decentralized finance, similar to how they are the largest asset class in traditional finance,” said Nikodem Grzesiak, co-founder of dTrade. “Derivatives are an exciting use case of blockchain. Entirely new perpetual swaps for blockchain-based assets within Polkadot’s multi-chain architecture can be added through a simple governance proposal.”
The popularity of crypto derivatives has exploded over the past year as participants seek additional exposure to the rapidly growing market. CoinMarketCap’s 2020 annual report found that crypto derivatives accounted for 55% of the total cryptocurrency market last year.
Polkadot’s developer network has also grown rapidly, with 435 projects having launched on the platform at the time of publication.
Dfinity’s ICP token sees violent first day of trade on major exchanges
Following five years of development, Dfinity’s Internet Computer token is trading on major exchanges.
Dfinity’s “Internet Computer” tokens are finally tradable after five years in the making.
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The launch of the Internet Computer utility token has seen a wild first day of trading after its long-awaited debut on exchanges.
The ICP token from Dfinity was listed on Coinbase Pro and several leading exchanges including Binance, Huobi Global, and OKEx on May 11.
Over four hours, prices for the newly launched token have swung from an early intraday high of $700 down to $250, before recovering 70% over 10 hours to trade for $425 at the time of writing. Coingecko estimates $1.8 billion worth of ICP tokens have traded just 14 hours since trade commenced.
ICP/USD chart, 24 hours: Coingecko
The Internet Computer is a decentralized blockchain project by the Dfinity Foundation. Dfinity describes the protocol’s mission as expanding the functionality of the public internet from a network that connects billions of people through standard protocols to a publicly accessible global supercomputer based on its own ICP protocol.
It has the lofty ambition of replacing the trillion-dollar legacy internet and IT industry by allowing developers to install their code directly on the public internet — dispensing with hosting companies, servers, commercial cloud services, and tech monopolies.
Like Ethereum, the platform would allow developers to run computing applications on decentralized infrastructure. However, Dfinity claims superior scalability over Ethereum’s Layer 1 mainnet.
While Dfinity has been focused on building this Internet Computer since 2016, much of the project’s inner workings have been shrouded in mystery due to its policy of closed-source development. The platform’s Mercury genesis launch event took place on May 7, marking the public launch of the platform after its completed mainnet initialization in December 2020.
ICP tokens can be staked into its governance system to earn “voting rewards” or be converted into “cycles” that can be used to power smart contract computation. The Internet Computer platform runs on a Network Nervous System (NNS), which is an open algorithmic governance system that oversees the network and the token economics.
The system is broken down into several subsections which include the ICP tokens in addition to “neurons” and “canisters” which govern the network autonomously and are explained in much more detail on the Dfinity blog.
The project started fundraising before the 2017 ICO boom under the DFN ticker but has since rebranded to ICP.
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