The Binance Coin-Burn Experiment

To those who are unaware, Binance is currently the world’s largest cryptocurrency exchange platform and is continuing to expand its operations. Binance has had a great year since its launch in July 2017. One of the more interesting developments is Binance’s own crypto token. Aside from the Binance hack which took place earlier in March, the exchange has had a considerably successful year. Additionally, one of the more unique concepts included in Binance’s white paper is their quarterly coin burn. According to the Binance white paper,

“A repurchasing plan will be implemented every quarter, we will use 20% of our profits to buy back BNB and destroy them, until we buy 50% of all the BNB (100mm) back. All buy-back transactions will be announced on the blockchain. We will eventually destroy 100mm BNB, leaving one of the key base assets as well as gas to be spent.”

Presumably, a reduction in the total circulating supply of coins would lower the total supply to make each Binance coin more valuable. This is an interesting concept that many are looking to take advantage of considering the pass growth of the Binance coin. Currently, Binance has a circulating supply of about 116,000,000.

Historically, Binance has undergone a few coin burns earlier in 2017. Binance burned 986,000 BNB in October 2017 and burned 1,821,586 BNB on January 15th 2018. However, these burns had relatively no effect on the price of the Binance coin. After the October burn the price of BNB conservatively fluctuated between $1.20 – $1.70. After the January 15th burn BNB dropped from $20.00 (Jan 15th) to $11.00 (Jan 17th). However, earlier in the month the price of BNB more than doubled from $9.00 (Jan 4th) to $22.00 (Jan 6th).

From this statistical analysis, it is difficult to determine how much impact the coin burns have had on the value of BNB. The anticipation of the January 16th burn may have caused a temporary price increase. Or the value increase of BNB could have been a result of the general uptake in the cryptocurrency market. Either way, the cause of the increase appears to be somewhat inconclusive.

The recent price increase of BNB has been attributed to Binance’s success as they announced a new banking partnership in Malta. This anticipated growth has resulted in a temporary surge in BNB’s price. As Binance moves into the next quarter, an April coin burn is rumored to be expected. At a circulating supply of 116,000,000 this burn could have the potential to be the most impactful burn yet.

Personally, I took a very small position in BNB at the beginning of March. I am still skeptical whether or not a price increase will occur. I plan to either see a price increase shortly after the announcement of the April burn, or nothing will happen and Binance will continue to fluctuate around $9.00 – $11.00. This is an experiment and nothing more, but if successful this could be an opportunity for a profitable short-term gain. I estimate that short term trades have the potential to be very profitable considering the largest price increases have historically taken place over very small time increments. For example, one of Binance’s largest price increases took place over the course of only 2 days: $9.00 (Jan 4th) to $22.00 (Jan 6th).

In conclusion, Binance appears to be continuing their expansion and success with their recent aspirations to start a “fiat-to-crypto exchange” on the European island of Malta. Still the execution of this plan is yet to be seen. In relation to the coin burn, when the date is released I speculate that the release date of the burn will increase the price more than the actual burn itself, as we saw earlier in January. Ultimately, the impact of news in the crypto market is not to be overlooked.

Disclaimer: I am not endorsed by Binance and I am not endorsing BNB. I am not a financial advisor and I encourage readers to do their own research. Furthermore, take responsibility for your own investments through independent research.

https://support.binance.com/hc/en-us/articles/115000599831-Binance-Exchange-Launched-Date-Set

https://support.binance.com/hc/en-us/articles/360001615252-Binance-Hacker-Bounty

https://www.binance.com/resources/ico/Binance_WhitePaper_en.pdf  (pg. 9, Repurchasing Plan)

https://coinmarketcap.com/currencies/binance-coin/

https://support.binance.com/hc/en-us/articles/115002096072-Binance-Coin-Burn-in-2017-Fall

https://support.binance.com/hc/en-us/articles/360000012892-Binance-Coin-Burn-in-2018-Winter

https://www.bloomberg.com/news/articles/2018-03-23/the-world-s-biggest-cryptocurrency-exchange-is-moving-to-malta

https://www.bloomberg.com/news/articles/2018-03-23/the-world-s-biggest-cryptocurrency-exchange-is-moving-to-malta