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Binance Coin Price Analysis – Increasing utility within the ecosystem

Binance has masterfully engineered the BNB token to become an all-encompassing aspect in every facet of the ever-growing Binance ecosystem. Because of this, the token has indeed gained a high degree of utility, which may also be seen by some as gatekeeping through the IEO lottery system, DEX listing fees, BEP2 transaction fees, and BEP2 token migrations.

Binance Coin (BNB) provides access to various features on the Binance exchange. While the asset was initially an ERC-20 token, migration to the Binance Chain (BEP2) took place in late April 2019. The market cap currently stands at US$2.039 billion with more than US$74 million in trade volume in the past 24 hours. The crypto asset is ranked 8th on the Brave New Coin market cap table, below EOS (EOS). Since the mainnet transition, price correlations between BNB and other top assets have continued to increase.

Binance Coin Price Analysis 20 Dec 2019 (1)
Source: CoinMetrics

The Binance exchange opened in July 2017, with founder and CEO Changpeng Zhao at the helm. Zhao had previously worked at blockchain.info from December 2013 until May 2014, and OKCoin as CTO from June 2014 until February 2015.

The BNB token ICO occurred from July 1st, 2017 to July 21st, 2017, where 100 million BNB tokens were sold, raising US$15 million with a token price of US$0.15. Notable investors and advisors included Matthew Roszak, Roger Ver, Chandler Guo, Zhao Dong, and Da Hongfei.

BNB has a capped supply of 200 million tokens, with 50% sold during the ICO, 40% going to the founding team, and 10% going to angel investors. The team funds have a vesting schedule, where 20% of the 16 million tokens were initially released and a further 20% will be released annually for the subsequent four years after the ICO.

According to the whitepaper, the funds are allocated for the following; 35% for building the Binance platform and perform upgrades to the system, including team recruiting, training, and development; 50% for Binance branding and marketing, including continuous promotion and education around Binance and blockchain innovations; and 15% is kept in reserve as an emergency fund.

A unique aspect of the BNB token management is burning events that take place every quarter. Tokens are acquired for burning purposes through exchange fees, OTC markets, or sold on the market and bought back later for the burn. However, Zhao has not explicitly stated how this process is completed.

The BNB token burns are paid for with 20% of the total exchange profits from the quarter. The current circulating supply is 153,863,972 BNB, accounting for all nine token burns thus far. The burning events will continue until 100 million BNB, or 50% of the total supply, are destroyed. Q3 2019 saw the second-highest total profit since token burning began.

Binance Coin Price Analysis 20 Dec 2019 (2)
Source: https://www.binance.vision/blockchain/what-is-a-coin-burn

The use cases for BNB ensure users remain in the closed garden ecosystem of Binance, which includes; Binance.com, Binance.US, the Binance DEX, Binance Launchpad, BEP2, and margin trading. Binance was originally founded in China, but moved to Japan in late 2017 and had offices in Taiwan by March 2018. Shortly thereafter, Binance announced a move to Malta to open a fiat-to-crypto exchange. In January 2019, the company launched Binance Jersey with fiat-to-crypto trading of the Euro (EUR) and British Pound (GBP).

Binance has added several services over the past six months including; margin and futures trading, BGBP and BUSD stablecoins, OTC for the Yuan, lending, and staking. Binance.US was also launched in September with US users required to move off of Binance.com for regulatory reasons.

Projects migrating to the BNB chain, or ICO projects listing on the BNB chain, must also purchase BNB tokens, currently equivalent to approximately US$20,000 (see table below). These fees are subject to change through a governance mechanism on BEP2. In October 2018, Binance announced that any exchange listing fees on Binance.com would be sent to a charity address, which has raised over 430 BTC, or nearly US$3.1 million, from nearly 1,400 donors. It is unclear whether DEX listing fees are currently sent to this fund or not.

Binance Coin Price Analysis 20 Dec 2019 (3)
Source: https://docs.binance.org/trading-spec.html#current-fees-table-on-mainnet

Binance.com, Binance.US, and the Binance DEX have continued to aggressively list a myriad of trading pairs, including pairs denominated in BNB. Fees for both exchanges can be paid with BNB and non-BNB assets, with fees paid in BNB currently attracting a 25% discount. Additionally, on Binance.com and Binance.US, there is a tiered trading fee discount program for accounts holding a significant BNB balance. These fees are much lower than Binance’s competitors.

Binance Coin Price Analysis 20 Dec 2019 (4)
Source: Binance.US

The launch of the Binance DEX followed a two-month testnet period, during which nearly 8.5 million transactions were made across a simulated trading competition, coding competition, and bug bounty program, where new updates and enhancements were implemented. On July 1st, the Binance DEX geo-restricted users in 29 countries, including the US.

The BEP2 mainnet went live on April 23rd and is focused on token issuance and trading. All transaction fees are denominated in BNB. The chain uses the Tendermint Byzantine Fault Tolerance (BFT) consensus mechanism and does not have smart contract capabilities.

According to the BEP2 explainer, “the initial validators are selected from trusted members of the Binance community, and will eventually expand to more members as the Binance blockchain and ecosystem matures, this responsibility will be distributed,” with more validators to be introduced over time. Light Simple Payment Verification (SPV) nodes can also use the network without verification or taking part in consensus.

As of October, the Binance DEX exceed US$50 million in trading volume on 115 tradable pairs and integrated trading through the Trezor hardware wallet. There have also been over 33 million transactions submitted by about 300,000 addresses with a total of 160 BEP2 tokens on the Binance Chain.

Binance Coin Price Analysis 20 Dec 2019 (5)

The Binance IEO platform, “Launchpad,” completed the ecosystems first IEO in late April and uses a system of lottery tickets for participation. Each lottery ticket is obtained by holding at least 100 BNB over a 20-day period preceding the lottery, with a maximum of five lottery tickets per account. Thus far, the 13 Binance Launchpad IEOs have outperformed and outraised most projects on other platforms. Binance IEO returns have also strongly outpaced those of other exchanges by several magnitudes.

Binance Coin Price Analysis 20 Dec 2019 (6)
Sources: Blockchain Capital

Starting from July 2018, 10% of all trading fees are stored in the Binance’s Secure Asset Fund for Users (SAFU). The SAFU acts as additional disaster insurance. On May 8th, Binance reported a theft of 7,074 BTC worth over US$40 million at the time. Zhao later reported that the BTC was withdrawn from Binance’s hot wallets, which contained only 2% of the exchange’s total BTC holdings. Binance’s other wallets are unaffected. All funds lost in the hack were replaced with Binance emergency funds.

The exchange was shuttered for several days while key system infrastructure was reset and rebuilt to mitigate future attacks, including significant changes to the API, 2FA, and withdrawal validation areas, which were areas exploited by hackers during this incident. The attack was similar to the Viacoin and Syscoin market abnormalities which occurred in March and July 2018, when the VIA/BTC pair briefly reached 0.025 BTC and the SYS/BTC pair briefly reach 96 BTC.

There are three levels of API permissions on Binance; read, trade, and withdrawal. For Viacoin and Syscoin, APIs were likely accessed through weakly secured third-party platforms using these API keys for trading purposes. In the most recent attack, a much larger list of API keys was accessed by an attacker, which included API keys allowing withdrawals. The LINK/PAX pair was also exploited in the same fashion as the VIA/BTC and SYS/BTC pairs had been previously and subsequently reached nearly US$10,000.

Binance Coin Price Analysis 20 Dec 2019 (7)

On-chain statistics for the BNB token include both the ERC-20 token and the BEP2 mainnet. Since the mainnet launch in April, transaction counts per day (line, chart below) have increased and average transaction values per day (fill, chart below) have decreased. Over the past few months, transactions reached all-time highs while transaction values reached all-time lows. This is likely a direct function of the Binance DEX launch and associated transactions.

Binance Coin Price Analysis 20 Dec 2019 (8)
Source: CoinMetrics

BNB daily active addresses (DAA) rose from January to July, falling from 24,000 to just under 2,000 recently (fill, chart below). This drop off has also correlated with BNB token price (line, chart below) and occurred as Binance.com geo-restricted US users to the Binance.US exchange. Binance announced this change on July 12th, disabling US users on September 12th, which suggests the drop off in DAA and BNB token price correlates with the announcement. The decline in DAA also corresponds with a decline in crypto prices broadly since July.

Binance Coin Price Analysis 20 Dec 2019 (9)
Source: CoinMetrics

A key driver is the BNB token successes is the Binance global footprint and sustained success to trade volume. The company has grown to employ between 500-600 employees across the globe. Since early 2018, the Binance exchange has consistently held the largest portion of the trading market. This has also likely put a bullseye on Binance from a regulatory perspective and may attract the attention of law enforcement officials, specifically in the US. Of the top 10 exchanges by real trading volume, Binance.US does not have money-service-business distinction or a New York BitLicense.

Binance Coin Price Analysis 20 Dec 2019 (10)

In the markets, BNB exchange-traded volume over the past 24 hours has predominantly been led by the Tether (USDT), Bitcoin (BTC), and U.S. Dollar (USD) pairs. Almost all of this volume comes from the Binance exchange itself. As many other exchanges begin to release their own exchange coins, such as Bitfinex’s LEO, it is unlikely that BNB will ever be listed on competing exchanges. In some cases, Binance would also likely require the exchange to hold the BNB token in order to facilitate trading.

Binance Coin Price Analysis 20 Dec 2019 (11)

Worldwide Google Trends data for the terms “Binance Coin” (top) remains down significantly from late 2017 and early 2018. A slow rise in searches in late 2017 and early 2018 corresponded with a market-wide price highs, likely signaling interest from new market participants at that time. A 2015 study found a strong correlation between the Google Trends data and BTC price, while a May 2017 study concluded that when the U.S. Google "Bitcoin" searches increased dramatically, BTC price dropped.

Binance Coin Price Analysis 20 Dec 2019 (12)

Binance.com has also lost a significant amount of traffic since June, according to search engine analysis by Alexa, when it previously ranked 841st globally. The site is currently ranked 1,557th globally and 4,275th in the US. Coinbase and Binance.US are currently ranked 1,150th and 8,130th, respectively, in the US while coinmarketcap.com has the highest rank among cryptocurrency-related websites at 541st globally.

Binance Coin Price Analysis 20 Dec 2019 (13)
Source: https://www.alexa.com/siteinfo/binance.com

Technical Analysis

On the daily chart for the BNB/USD pair, the 50-day EMA and 200-day EMAs have been bearishly crossed since September 21st. Substantial volume support (horizontal bars) sits at US$12-16 as well as US$10. Both volume and RSI show no signs of bullish divergence, which would suggest waning bearish momentum.

The Ichimoku Cloud metrics with doubled settings (20/60/120/30) for more accurate signals are all bearish; price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below Cloud and below price. The bear trend will remain intact as long as price remains below the Cloud.

Four metrics are used to indicate if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

Binance Coin Price Analysis 20 Dec 2019 (14)

Price has also formed a bearish reversal pattern, reminiscent of either an inverted cup and handle or head and shoulders. In either case, a near term target between US$8.50 – US$10.00 is likely based on volume support. A similar pattern formed from April to October 2018 which concluded with a price drop from US$10 to US$4 in November 2018. A prolonged series of lower highs and lower lows often results in a test of key price support zones.

Binance Coin Price Analysis 20 Dec 2019 (15)

On the daily chart, for the BNB/BTC pair, price has also been in a months-long bearish trend. The 50-day EMA and 200-day EMAs have been bearishly crossed since July, and price has been below the Cloud since June. The largest zone of volume support sits at the 0.0015 BTC level. Although there are no bullish divergences to suggest a trend reversal, RSI is currently 20, which has only occurred on two other occasions, both representing a local bottom in price.

Binance Coin Price Analysis 20 Dec 2019 (16)

Conclusion

Binance has masterfully engineered the BNB token to become an all-encompassing aspect in every facet of the ever-growing Binance ecosystem. Because of this, the token has indeed gained a high degree of utility, which may also be seen by some as gatekeeping through the IEO lottery system, DEX listing fees, BEP2 transaction fees, and BEP2 token migrations. These fees can also be seen as analogous to membership fees on the trading floors of traditional legacy markets. Users are also incentivized to spend BNB to pay for trading fees, which are discounted by 25%, or hold BNB for a maker/taker discount. This coupon will be reduced to 12.5% next year, 6.75% the year after, and ended completely on Binance’s 5th anniversary.

As for the token burn, thus far, there has been an unenforceable implied contract with users, which has been met as expected. There is no reason to believe this will not continue, but the migration of BNB to the BEP2 chain now means Binance is the centralized authority of these token transactions, at least for the time being. From a public relations perspective, Binance has no reason to ever reverse transactions, but they do now likely have the ability to do so. A legal question remains as to where the blurred lines of security and utility could dampen token success in the future, if the token gains regulatory scrutiny, especially now that the token is listed on Binance.US.

Technicals for both BNB pairs show trend metrics that are consistent with bear market conditions and no immediate signs of reversal. The BNB/USD pair has strong support at US$10.00 and the BNB/BTC pair has strong support at 0.0015 BTC. Despite growing exchange dominance in terms of trading volume, as well as large token burn in Q3, BNB token price has not responded in a bullish manner. BNB token price has instead correlated more closely with daily active addresses (DAA) for the BNB token. A future sustained increase in BNB token DAA will likely also bring a bullish rally.


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