Binance Coin Price Analysis – Record token burn

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.

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The market cap currently stands at US$3.86 billion with more than US$238 million in trade volume in the past 24 hours. The crypto asset is ranked 8th on the Brave New Coin market cap table. Since June, price correlations between BNB and other top assets have decreased dramatically.

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 performing 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.

One unique aspect of BNB token management is burning events that take place every quarter. Tokens are acquired for burning 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 125,692,097 BNB, accounting for 13 token burns thus far. The burning events will continue until 100 million BNB, or 50% of the total supply, is destroyed. Q3 2020 saw the highest total profit since token burning began at US$1.7 billion.

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 year, including; margin and futures trading, BGBP and BUSD stablecoins, OTC for the Yuan, lending, staking, and savings. Binance.US was also launched in September 2019 with US users required to move off Binance.com for regulatory reasons.

Source: Binance Blog

The BUSD stablecoin was launched last year and has reached one billion USD in purchase volume. As reported by Binance, 155,000 users currently hold BUSD, which can be used on the Binance exchange or the Binance DEX throughout the Binance ecosystem. When comparing the circulating supply of all stablecoins, BUSD is fourth, behind Tether, USDC, and Paxos.

Source: Binance Blog

Projects migrating to the BNB chain, or ICO projects listing on the BNB chain, must also purchase BNB tokens, currently equivalent to approximately US$30,000 (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 960 BTC, or nearly US$12.6 million, from over 1,700 donors. It is unclear whether DEX listing fees are currently participating in this charity fund.

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, Binance.com and Binance.US, have a tiered trading fee discount program for accounts holding a significant BNB balance. These fees are much lower than Binance’s competitors.

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. In July 2019, 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 January 2020, the Binance DEX exceeded US$50 million in trading volume on 121 tradable pairs and integrated trading through the Trezor hardware wallet. There have also been about 50 million transactions submitted by over 330,000 addresses with a total of 165 BEP2 tokens on the Binance Chain.

Source: Binance Blog

The Binance IEO platform, “Launchpad,” completed the ecosystem’s 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. Overall, 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.

Sources: Blockchain Capital

Starting from July 2018, 10% of all trading fees are stored in the Binance 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 were 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 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 reached 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.

On-chain statistics for the BNB token include both the ERC-20 token and the BEP2 mainnet. Since the mainnet launch in April 2019, 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 near all-time lows. This is likely a direct function of the Binance DEX launch and associated transactions.

Source: CoinMetrics

BNB daily active addresses (DAAs) have ranged from 1,000 to 24,000 over the past year (fill, chart below). BNB DAAs highly correlate with BNB token price (line, chart below). In July 2019, Binance announced geo-restriction for US users, disabling US users entirely by September. The drop off in BNB DAA and token price both correlated with the announcement.

Source: CoinMetrics

A key driver in the success of the BNB token is the Binance brand’s global footprint and sustained access to trade volume. The company employs 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.

Worldwide Google Trends data for the terms “Binance Coin” (top) remains significantly down from late 2017 and early 2018. A slow rise in searches in late 2017 and early 2018 corresponded with 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.com has gained a significant amount of traffic over the past three months, according to a search engine analysis by Alexa. The site is currently ranked 649th globally and 3,522th in the US. Last year, Binance.com ranked 841st globally. Coinbase and Binance.US are currently ranked 555th and 3,694th, respectively, in the US while coinmarketcap.com has the highest rank among cryptocurrency-related websites at 632nd globally. Binance formally acquired coinmarketcap.com in March 2020.

Source: https://www.alexa.com

Technical Analysis

BNB has followed the wider cryptocurrency market recently, with some gains in early 2020, a swift retracement in March, and a strong recovery off the lows. As the macro trend continues to recover, the strength and duration of the new trend can be measured using Exponential Moving Averages, Volume Profile of the Visible Range, Yearly Pivots, and the Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here.

On the BNB/USD daily chart, the 50-day and 200-day Exponential Moving Averages (EMAs) have been bullishly crossed since late July. Both the 50-day EMA, at US$28, and 200-day EMA, at $23, should now act as support. Substantial volume support (horizontal bars) sits in the US$22 zone, the US$12-16 zone, and the US$10 zone. Upside resistance sits at the yearly pivots of US$36 and US$58.

Price has also potentially formed a rising wedge pattern with a multi-month bearish divergence on volume and RSI. This pattern includes a series of higher highs and higher lows, touching each trend line more than once. Resolution of the pattern would likely bring the spot price back to the 200-day EMA, however, rising wedges in crypto markets have a tendency to explode out of the top rather than retrace to key supports.

Turning to the Ichimoku 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.

Daily Cloud metrics, with doubled settings (20/60/120/30) for more accurate signals, are currently bullish; the spot price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above Cloud and above price. The trend will remain bullish as long as the spot price is above the Cloud. Kijun support currently sits at US$26.

On the BNB/BTC daily chart, the 50-day EMA and 200-day EMAs are also bullishly crossed but the spot price has slid under the Cloud over the past week. Bullish trend confirmation will occur once the spot price drifts back above the Cloud. VPVR support sits at 0.0019 BTC and 0.0015 BTC. Long-term overhead yearly pivot resistance sits at 0.0027 BTC and 0.0040 BTC. Both volume and RSI show no signs of bullish or bearish divergences.

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 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 was reduced to 12.5% this year, will reduce to 6.75% next year, and will end 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 BNB/USD suggest a strong bullish trend with price above both the 200-day EMA and daily Cloud. A potential bearish chart pattern, the rising wedge, is also close to resolving, which may bring the spot price back to the 200-day EMA around US$23. Despite the low probability of rising wedges resolving bearishly in crypto markets, the multi-month bearish divergence on the RSI strongly suggests waning bullish momentum.

Technicals for BNB/BTC show a much more indeterminate trend with the spot price above the 200-day EMA but below the daily Cloud. The trend will remain non-specific until the spot price is once again above both the 200-day EMA and daily Cloud, which it may not be for several weeks. Long-term overhead resistance sits at the Yearly Pivots of 0.0027 BTC and 0.0040 BTC. Historically, since 2018, BNB has been most bullish in Q1 and Q2 and more bearish in Q3 and Q4 of any given year.