BNB Chain cools off after 24% surge, but strong fundamentals could back the next BNB rally

After an impressive 23.7% rally between Oct. 25 and Oct. 31, Binance Chain BNB, has faced a strong rejection from the $330 resistance. Is it possible that the two-day 6% sell-off from the $337.80 peak could indicate that further trouble is ahead?

Let’s take a look at what the data shows.

BNB Coin (BNB) 12-hour at Binance, USD. Source: TradingView

Analysts pinned the recent rally to the Oct. 28 news that Binance had invested $500 million in Twitter. However, the network’s deposits and decentralized applications metrics have not accompanied the improvement in sentiment.

The strong upward movement was largely based on reports that Binance was preparing to assist Twitter in eradicating bots. The speculation emerged after billionaire Elon Musk raised the $44 billion required to complete his purchase of the social media platform.

In absolute terms, BNB’s year-to-date performance reflects a 40% decline, but it ranks ahead of competitors as Ether (ETH) is down by 59%, Solana (SOL) 82% and Polygon (MATIC) registers a 79% correction.

To understand whether the recent 6% downturn is a presage of a deeper correction, traders should look at the network’s use in terms of deposits and users.

BNB TVL dropped less than its competitors

Generally, analysts tend to give too much weight to the total value locked (TVL) metric. Although this might hold relevance for the decentralized finance (DeFi) industry, it is seldom required for crypto games, nonfungible token (NFT) marketplaces, gambling and social applications.

BNB Chain Total Value Locked, BNB. Source: DefiLlama

BNB Chain’s primary decentralized applications (DApps) metric showed weakness in late July after its TVL dropped below 22.5 million BNB. More recently, the TVL dropped to 18 million BNB, nearing the lowest levels seen since April 2021.

In dollar terms, the current $5.9 billion TVL is the lowest figure since Aug. 11. This number represents 10.9% of the cryptocurrency market aggregate TVL, according to data from DefiLlama.

Still, the monthly 5% TVL contraction was lower than its smart contract network competitors. For instance, the Ethereum network’s TVL fell by 13% in ETH terms in the same period. Solana’s network TVL went down by 22% in SOL terms and Polygon’s network TVL declined by 19% in MATIC terms.

DApp use has also underperformed against competing chains

To confirm whether the TVL drop in BNB Chain is troublesome, one should analyze other DApp usage metrics.

BNB Chain most active 30-day DApps. Source: DappRadar

Nov. 2 data from DappRadar shows that the number of BNB Chain network addresses interacting with decentralized applications declined by 5% compared to the previous month. In comparison, Ethereum posted a 5% decrease, and Solana users dropped by 13% in the same period.

BNB Chain’s TVL has been impacted the least compared to similar smart contract platforms, and the number of active addresses interacting with most DApps surpassed 40,000 in 8 instances. Ethereum, on the other hand, racked up only 5 decentralized applications with 40,000 or more active addresses in the same period.

The findings above suggest that the BNB Chain is holding ground versus competing chains, which supports the recent rally. Consequently, the data should be considered favorable for BNB investors and weaken the odds of further price corrections.