Ledger Nano S - The secure hardware wallet

Is Binance Coin (BNB) Decoupling from Bitcoin (BTC)?

binance-bnb-bitcoin

Over the past month, Binance’s BNB token has risen significantly. While it’s US Dollar performance has been impressive, almost tripling in the last three months, perhaps even more significant is BNB’s performance against Bitcoin. The price action is causing many to question whether Binance Coin may be the first token to successfully decouple itself from Bitcoin.

Binance Coin vs Bitcoin

Binance’s price divergence from Bitcoin began in December 2018. After months of trading at around 0.0014 to 0.0015 BTC, BNB briefly fell into the 0.0012-0.0013 region in late November, before briefly spiking above 0.0016 on December 5. Since then, BNB has been climbing steadily in terms of both US Dollar and Bitcoin, moving from $4.55 and 0.0013 on December 7 to as high as $14.84 and close to 0.004 on March 8.

For comparison, top-ranking cryptocurrencies such as Ethereum and XRP have tracked Bitcoin’s price much more closely during this period. ETH has been between 0.026 and 0.039 and XRP has been between 0.000079 and 0.0001 since early December. Both currently look to be trending downward against Bitcoin’s price, with XRP currently experiencing its lowest BTC values since September.

So what is causing Binance Coin’s strong performance? And is it a sign that BNB is the first coin to successfully decouple itself from Bitcoin over the long term?

Increased Value following Increased Utility

The last few months have seen some significant developments for Binance with direct implications for the use of Binance Coin. One of the biggest has been the introduction of Binance Labs, Binance’s ICO incubator which uses BNB as one of its base pairings.

Binance Coin’s strong performance against Bitcoin almost perfectly coincides with the December launch of Binance Labs. By far the most hype for Binance Labs came with the launch of the Tron-backed BitTorrent token, which completed a successful $7 million ICO within 15 minutes of going live in late January. A total of 12 projects were launched as part of Binance Labs’ first “season” of offerings, and there are indications the second seasons could be even bigger.

In December, CoinDesk broke the news that Binance Labs would be launching incubator programs in Berlin, Buenos Aires, Hong Kong, Lagos, and Singapore beginning this month. And within the past few days, CoinDesk revealed that the Argentinian government will be offering financial support to participating projects, with the Ministry of Production and Labour matching up to $50,000 of investment that Argentinian projects receive through the initiative.

A direct fiat-to-BNB gateway opened in January, as Binance Jersey made it possible to purchase cryptocurrencies on its platform. And then in February, Binance made the first version of its Binance DEX available for public beta testing. The DEX is also the first project to use Binance Chain, which is another area of potential growth. Binance CEO CZ revealed during an interview with the Ivan on Tech YouTube channel that eight projects will be migrating from Ethereum to the new Binance-backed blockchain platform.

We recently looked at how Coinbase and Binance are increasingly colliding in terms of the services both platforms offer. Both exchanges seem to be in an escalating arms race to become the all-conquering “Google of Crypto.” The continued success of Binance Labs and the popularity of other new ventures are putting Binance into a very strong position in this fight.

How Binance Keeps BNB’s Price Up

Binance Coin’s initial use case was as a way to reduce trading fees on the platform. Binance charges a flat 0.1% for fees normally, but as this page on Binance’s website explains, this is reduced when BNB Coin is used to pay for fees. The percentage reduction is set to reduce over time – from 50% in the first year, to no reduction in the fifth. This would suggest that Binance Coin would have less worth as time goes on, but Binance has taken steps to ensure the price keeps rising.

Binance regularly burns large amounts of BNB tokens in order to reduce supply. These burns are carried out each quarter, and typically see millions of tokens destroyed. In mid-January, Binance completed its sixth quarterly token burn, destroying 1,623,818 BNB. As stated in Binance’s accompanying blog post, the dollar value was approximately $9.4 million. Previous token burns have seen similarly large amounts destroyed:

Q1 – 986,000 BNB

Q2 – 1,821,586 BNB

Q3 – 2,220,314 BNB

Q4 – 2,528,767 BNB

Q5 – 1,643,986 BNB

As a Medium post from analysts Blocknovum explains, Binance allocates 20% of its profits each quarter for buying back tokens to be burned. This is set to continue until 50% of all 100 million BNB have been bought back and destroyed. According to Blocknovum’s analysis, the token burn process will have been completed by mid-2025.

As detailed in the Binance Coin whitepaper, 50% of the total 200 million BNB supply was sold at ICO, with 30% allocated to the Binance Team and 20% reserved for angel investors. The team’s supply are released at a rate of 16 million tokens per year for four years following the ICO.

Naturally, Binance’s team has a major economic incentive for keeping the value of the tokens they hold high. But in the blog post announcing the most recent token burn, CZ points out this should be seen as a positive for ordinary token holders:

“Binance is also a larger holder of BNB, so we benefit the same way as all BNB holders. The more people using Binance Chain, the more value is created, or the more successful we all become.”

Bitcoin Decoupling: Temporary Phenomenon or Long-term Trend?

Decoupling from the volatilities of Bitcoin’s price movement is a long-term goal of almost every project in crypto. Recent price movement suggests Binance Coin may be on the cusp of achieving this. But is this going to last for the long-term?

Binance Coin’s recent performance can be attributed to a raft of positive news in recent months. But projects such as Binance Labs and Binance Chain are only getting started. If Binance can keep the momentum behind them high, they may be able to keep Binance Coin separated from Bitcoin over the long-term.

Of course, other coins have experienced periods of decoupling in the past, only to fall back in line with Bitcoin once the hype wears off. Countless alts vastly outstripped Bitcoin’s performance during the 2017 bull run, only to fall back in line or underperform Bitcoin once the bear market began to bite. It’s too early to say with any certainty whether the past three months marks the beginning of a long-term trend. But Binance is certainly building a strong platform for continued future success.

About Christopher Williams

Christopher Williams is a British writer based in South Korea with a strong interest in emerging technologies, cryptocurrency, and the development of decentralized apps.

Ledger Nano S - The secure hardware wallet