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Cryptocurrency Investment

How the Binance Exchange Coin Has Gone Up In A Bear Market

By August 9, 2018 No Comments

The Binance Exchange Coin Is Top Performer This Year

How on earth has the Binance Exchange coin appreciated during the past few months? Not only has it survived, but it has thrived. This week we conduct a case study on the BNB token and token economics. We examine how the Binance coin is providing the world that token utility can actually work.

More on that after the weekly market analysis.

Cryptocurrency Market 7-day recap

This past week has been tough, yet again, with the cryptocurrency market valuation falling another $34 billion.

The week started around ~$260 billion, and finished at around $226 billion.

Weekly trading volumes started strong around $13 billion, finishing slightly lower at $12.7 billion.

Figure – Coin market cap

Market Dominance

Bitcoin dominance is continuing to climb, with the week starting out at 48.54% and finishing at 49%.

Figure – Coin market cap

Google trends searches for BitcoinEthereumRipple and cryptocurrency are continuing to show interest levels are very low. A small spike occurred later in the week, but levels returned low just days after.

Figure – Google trends

Binance Token (BNB) – A case study on token utility

The star of the show, the Binance Token

In what can be only regarded as astonishing, the Binance exchange coin,  aptly named ‘BNB’, is one of the few cryptocurrency tokens to actually APPRECIATE during this bear market. But how? Most tokens are highly correlated to one another? Has this token got super powers, or has Binance solved the equation for creating real utility?

If you bought Bitcoin, Ethereum, or any of the top 10 cryptos during the February lows and held till now, you’d be down between 2.7% to 5%. If you bought during the December peaks, you’d be down a gut wrenching 68 to 88 percent.

According to the All Time High Index, the Binance token is the best performing token in the top 50 cryptocurrencies by market cap.  The index takes the difference in percentage between a coins highest ever price and its current price. Astonishingly, the Binance exchange coin has performed 14.8% better than the nearest coin, which is the 0x token down -66% from its ATH.

Image of the chart from all time high index showing Binance coin is only down 51.29% compared with 0x which is down 66.46%

If we take the total market cap and all the coins as an index, the market is down 73% from its ATH in December, which was approximately $828 billion USD at its peak. This means the BNB token has outperformed the entire cryptocurrency market by 21.77% since the highs.

Image of the total cryptocurrency market cap which shows the valuation is down by around 73% since the December all time highs

Here is the amazing part. Since the February lows, the BNB token is up an incrdible 53%, whereas the entire cryptocurrency market is down -19%! This means that since the 6th February, the Binance exchange coin has outperformed the crypto market by 72%!

Image of the Binance BNB token price chart which shows it has appreciated by 55% since February

A Binance History Lesson

To gain an understanding on the Binance exchange coin utility and performance, we first need to look at where it all started, and what Binance actually is.

Back in July 2017, Binance conducted its Initial Coin Offering, raising around $15 million USD and issued approximately 192.4 million BNB tokens according to its token contract. The ICO was conducted to provide the revenue need to build out the digital currency exchange platform, with the tokens to be used within the exchange. More on that later.

The ICO itself was a success despite rating sites seeing the project as poor to very poor. ICO Bench gave Binance a paltry 3.6/5, with ICO Crunch an even worse rating of 2.3/5 due to lack of ratings from other sites.

Image of the low rating given to Binance exchange coin ICO by ICO Rating

The ratings didn’t seem to have an effect, as Binance kicked into high gear and opened the exchange to the public shortly afterwards. Despite setbacks from China banning exchanges, Binance was able to rapidly climb the ranks of the worlds best. Within just 6 months, the exchange became one of the biggest exchanges by trading volume, sitting now at rank #3 in the world.

In what could only be described as a meteoric rise, both the exchange and the token itself have experienced tremendous success. From clever marketing through generous referral programs, to moving the company base to Malta to take advantage of pro-blockchain laws, Binance is moving full steam ahead. Only recently, Binance acquired an equity stake in a Maltese decentralised bank. It also announced backing of a start-up accelerator program run by the Malta’s stock exchange.

Sponsor – IOTW Blockchain Ecosystem

This segment is sponsored and should be regarded as promotional material.

IOTW is a blockchain ecosystem being designed with a brand new architecture. Using a new and unique consensus protocol called ‘Proof of Assignment’, the IoT devices will be able to connect mine IOTW coins, all without the need for changes to hardware.

The problem

Current proof of work consensus protocols are energy intensive, meaning the algorithms used consume a lot of energy through the mining process. As networks grow and expand, as does the difficulty level, or computational power, required to participate as a miner. This continually raises the bar for entry and tends to focus mining operations in regions with low electricity and hardware costs.

IOTW’s proposed solution

IOTW are proposing an entirely new concept to providing consensus on a blockchain. By using IoT devices as a ‘node’, owners of these devices would be able to connect them to the IoT blockchain, enabling a kind of passive ‘micro-mining’ mining process.  It would also enable more network participants to be an active miner, without the need for expensive computer hardware used in PoW protocols.

The token

The token associated with the IOTW blockchain is called IOTW, and according to the one pager, will be used as a form of currency. It may also be used in the future as a medium of exchange between machines, and for devices calling services.

More information can be found on IOTW by visiting the official website, or reading the whitepaper.

The Binance exchange coin

The business development of Binance is proving itself to be the best in the business. The exchange has climbed the ranks of the worlds best. The community is growing to massive numbers. The CEO, Changpeng Zhao, is becoming a household name in crypto. So is the coins price appreciation purely speculation? Is it feverish hype driven accumulation by investors? Is it the ‘musk’ effect in play, where mires of adoring fans believe in the company’s mission? Lets look a bit deeper.

Cryptocurrency tokens are unique in the fact that they represent a portion of a network. Bitcoin is a piece of the Bitcoin network. Ether is a computational resource required for executing smart contracts and is used in ICO’s. OmiseGo is a network that will use the OMG token for staking. Lisk requires the LSK token to be staked to build a side-chain, and is used in staking.

In each of these examples, and in almost all cryptocurrencies, the demand for a token can be based on the probabilistic network consumption of the platform its linked too.

The Binance exchange coin is a pure utility token. What this means is, the token is not used for computational resources. It is not used for staking in a proof of stake consensus protocol. It is not a piece of the Binance network, given the fact it is actually an Ethereum ERC20 based token, for now

What is the Binance exchange coin used for then?

According to the Binance whitepaper, the BNB coin and its demand is designed by several factors, which are;

  • Paying for fees on the platform, such as exchange, withdrawal, listing, and other fees.
  • Repurchasing plan, where 20% of all Binance company profits will be used to buy back and burn (destroy) tokens each quarter, lowering overall supply.
  • To be used in the future as a key base asset and as ‘gas’ to be spent on the ‘Binance Chain’, the protocol for a decentralised exchange.

We know the decentralised exchange is in early development, so only the first two points from the whitepaper directly would be contributing to token demand right now.

Other BNB use cases

Although not shown in the whitepaper, the BNB token can also be used to invest into ICO’s that are listed on the Binance Launchpad. The launchpad is an exclusive section for projects that Binance deems as high quality. Users who choose to invest into these projects are able to purchase tokens before they are listed on the exchange. To date, it appears only two projects have been listed.

The Binance exchange coin is also used for dozens and of cryptocurrency markets, where holders of BNB can directly exchange them for other cryptocurrency tokens.

How the Binance coin is used for fees

According to the fee structure, Binance have implemented a tiered discount rate for fees. Spanning a 5 year period, discounts start at 50% for the first year, 25% for the second, 12.5% for the third and 6.75% for the 4th. After the 4th year, the holding the token will not yield any fee discount.

The way the fee structure has been designed is quite clever. If you hold BNB token and they are stored on the exchange, you can turn on a button for using BNB for fees. If the button is on, then your trading fees are reduced by 50%, and the fees are taken from your BNB holdings. If the button if off, you are charged 100% of trading fees, which is presumably taken from whatever you are buying or selling.

Image of Binance fee structure, showing the discount a holder of the binance exchange coin can get over a period of 5 years

Because the BNB token is traded on markets itself, its value changes. The fee deduction function is designed to peg the value against Bitcoin at the time of the trade, and updates every second. So if the value of BNB/Bitcoin goes up, your fees go down. If the value of BNB/Bitcoin goes down, your fees go up. This could be a contributing factor as to the value of BNB/USD and BNB/BTC being fairly closely correlated.

Image of the Binance exchange coin again the USD and Bitcoin BTC

Whats a ‘token burn’?

A token burn is a process where a company intentionally sends a specific amount of tokens to an unused or ‘dead’ address. Basically any tokens send to this address cannot be retrieved, and are thus taken out of circulation. The process is calling ‘burning’, and is a way to reduce a tokens supply, whilst making it publicly verifiable.

So why do it? Well cryptocurrency prices are no different to any other stock or commodity. Its all based on supply and demand, and in these early days of token economics and utility, its a way for companies to artificially reduce the supply of its tokens in the hope that demand will remain constant. With constant demand and a reducing supply, you may see the price appreciate.

Analogies to traditional companies

Its also a common practice in traditional companies, where it is called a ‘stock buy-back‘. Basically when a company is doing well financially, they can opt to buy back their own stock. This takes the stock out of circulation and off markets, increasing the chances of price appreciation for those holding the stock. The company may also see there own stock as undervalued, and so chooses to buy the stock back in the hope the market will tip the valuation in their favour in the years to come.

The difference in the above analogy is that tokens sent to a burn address literally can never be brought back into circulation. Neither can further tokens be issued after the ICO.

Is the Binance exchange coin a success in token utility?

When we take a look at Binance, its achievements and success, and the utility it has managed with its token, we must appreciate it. Cryptocurrency tokens and there use-case as a ‘utility’ token is consistency under fire from Government and financial institutions around the world. Many claim that all tokens are securities, and that there is no such thing as a ‘utility’ token.

What Binance has done and is continuing to do, is prove that a token can be used to raise funds, be used within a system, and represent a portion of a network. Its price appreciation over the last few months is proving to the crypto community and the world that this can work. Tokens with real utility can function and as a result of successful implementation, may even appreciate in value.

The community needs to not only acknowledge Binance for this tremendous feat, but use this model as a case-study for future token utility in the years to come.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators’ websites before making any decision. Cryptocurrency Australia Media, or the author, may have holdings in the cryptocurrencies discussed. Referrals and affiliate links do earn us commissions but they are products or services we personally use and would not endorse if we did not believe in them

Beau is the Founder & Chief Editor at Cryptocurrency Australia Media, an educational platform designed to help anyone learn about cryptocurrency investment and blockchain technology. Beau is also the Founder & Principal Consultant of Blockchain Management Solutions, a specialist technical and project management consultancy, is an advisor with Masternode Ventures, a blockchain incubator, and is an advisor with THORChain, a new decentralized exchange protocol.