Monday, September 25, 2023

BNB amid declining market share

Binance is the largest cryptocurrency exchange in the world, and it’s not particularly close. Their dominance is to such an extent that it qualifies as extremely ironic coming from an industry that points to the concept of decentralization as one of its foundational pillars.

But Binance has serious problems. The exchange was sued by the SEC on Monday, alleging a long list of crimes. Without getting into the nitty-gritty of that much-discussed topic, here are some of the main allegations:

  • trade against customers
  • securities law violations
  • Encourage US customers to dismantle compliance controls designed to prevent them from using the platform
  • Manipulative trading to increase volume
  • money laundering

But this is not an article on litigation. I’ve written a lot about Binance in the past, including a deep dive last year where I bemoaned its complete lack of transparency. Seriously, I’m a little tired of talking about Binance.

Binance refuses to verify anything, instead we are forced to blindly trust the CEO’s tweets assuring the world that all is well and that the countless investigations, lawsuits, and complaints are an unfair witch hunt. And maybe they are exactly the same. But for a company with a trillion-dollar business volume and such systemic importance to the entire industry, a tweet is not a good enough substitute for an audit. is not acceptable. I’ve asked this before and I still don’t know the answer, but “Trust, Don’t Verify?” What happened to the crypto mantra of

but I digress. Let’s park the pessimism about the state of the industry aside and see how Binance’s woes correlate to the price action of its native token, BNB.

BNB Token Price Analysis

BNB is the native token of Binance. It is used for a variety of functions in its ecosystem, with the most common being the ability for holders to take advantage of low fees on the platform.

I have said in the past that when breaking down the price charts of cryptocurrencies, they all trade more or less like leveraged bets on bitcoin. bitcoin goes up, altcoi goes up. Bitcoin goes down, altcoins go down further. Easy.

With BNB, this has largely been the case (as I will show with some charts shortly). But there are some notable differences from what you might expect.

First, in 2023, there is a solid break in the trend. BNB is well below the general benchmark.

The chart above summarizes it. BNB has only added a relatively anemic 5.6%, despite a six-month rally in cryptocurrency prices that saw bitcoin and ethereum gain 60% and 53%, respectively. If someone had told you at the beginning of the year that the Nasdaq would be up 27.5% and Bitcoin would be up 60% in June, you would have assumed BNB would have skyrocketed.

But things have changed for Binance in 2023. Firstly, the dominance of the exchange seems to be declining. Below is the level of the land going into 2023. As mentioned above, Binance controls two-thirds of the trading volume in the entire space. The second-place exchange, Coinbase, sat at just 8%.

However, this share fell to 57.5% in two months this year, according to CC data. Today it has come down to 43%. That is, the market share has declined by 24% in six months. And the big reason is, you guessed it, regulation.

The shutdown of Binance-branded coin BUSD in February was a major blow to Binance, which was the biggest driver of liquidity on its platform. Then there is the case of the CFTC, which accuses Binance of running a “knowingly opaque public company.” And now the SEC is calling.

So how will all this affect BNB price action? OK, as indicated above, now let’s look at how BNB is trading against Bitcoin. The chart below shows the performance at the top of the bull market in November 2021:

It quickly highlights the locking relationship of the two properties. But if you take a closer look, it also shows something else that is unusual. Despite this chart with a brutal bear market, BNB has overcome For bitcoin, which altcoins simply do not do. In bear markets, bitcoin falls and altcoins they fall a lot,

Look at the above chart again. The relationship is symbiotic until May/June 2022, when BNB becomes noticeable. The two assets are still trading highly correlated, but BNB is headed north on the charts. In contrast, nearly every other altcoin has done the opposite over this time frame: underperforming and underperforming bitcoin as the broader crypto space took a beating.

To illustrate how well BNB has performed over this period, adjust the above chart to the close of this period from May 2022.

Of course, this period begins in May 2022, when the UST death toll drops to zero and chaos ensues throughout the crypto market. Shortly thereafter, Celsius dropped, and the crypto bull market that soared during the pandemic finally came crashing down.

BNB’s growth reflects Binance’s growing market share and increasing dominance of the cryptocurrency space during this time. With rivals out of the way, Binance grew bigger and bigger. Remember that statistic that said 67% of trading volume by the end of the year was done on Binance? By early 2022, that metric was up 48%. Binance added 19% market share in a year as cryptocurrencies bounce back and competitors crackdown. And its native token, BNB, outperformed as a result.

BNB Price Plunges Amid SEC Lawsuit

But as mentioned above, the Binance domain got leaked this year. And with that decreasing dominance, BNB price behavior is changing. The above graph shows the sharp decline in recent weeks. At one point in April, before the Terra collapse, BNB was down just 7% of its May 2022 value. Bitcoin, on the other hand, is down 20%. Today, BNB is down 31% compared to 29% for bitcoin.

This is mainly due to the SEC lawsuit this week, which has resulted in a 15% drop in the price of BNB, while bitcoin is only down 2%. It looks like the tremendous BNB and Binance outperformance of both bitcoin and the broader crypto market has finally come to an end.

This is without even mentioning the liquidity of the BNB token. The BNB token also has extremely low liquidity compared to other “blue chip” cryptocurrencies. Of all the major coins, BNB’s position as number four by market capitalization is the one that gets out of hand the most with its inherent liquidity being very unfavorably compared to its surrounding coins. Here too the closure of BUSD has not helped.

This is often the case with native tokens and should be cited as an additional cause for caution among investors. But back to price action, the reality is that BNB will go to Binance. The outperformance compared to the rest of the market highlights that Binance is enjoying a tremendous run through 2022, gaining market share and becoming the largest cryptocurrency company on the planet.

But things have changed and the future is now full of uncertainty. Legal cases are on the rise in the US and the seriousness of the situation cannot be underestimated. If the US subsidiary of Binance is expelled from the US, it would be a huge blow. The coin may have dropped 15% this week, but if the world’s largest financial economy gets disconnected from Binance, it could multiply that price drop by an order of magnitude.

BNB’s market capitalization remains at over $40 billion. Crypto is extremely volatile and impossible to predict in the short term, and it could easily move higher in the coming weeks. I really don’t know, and I would never make a half-hearted prediction because.

But I view the BNB token on Binance almost as equity (albeit with a lot more uncertainty than traditional shares in a company, the murky nature of liquidity, and some of the tokens involved). And in that context, and with the tailwind of Binance’s seemingly supernatural performance throughout the bear market, I don’t want to be a part of this $40 billion dollar valuation.

There is too much uncertainty about the future path of Binance and too many ongoing legal cases to make a reliable assessment. I’ll live to fight another day. Hopefully, for the crypto market, Binance will too.

World Nation News Desk
World Nation News Desk
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