Is Binance Coin (BNB) a Good Investment? In-depth Analysis and Near to Longer-Term Expectations
Is Binance Coin (BNB) a Good Investment? In-depth Analysis and Near to Longer-Term Expectations

By CryptoBoomer | Investments | 19 Dec 2019


The cryptocurrency market as it stands today is littered with different cryptos. There are now nearly 5000 coins listed on CoinMarketCap!

Such a high number of coins is really ridiculous and that’s why many experts predict that 99% of cryptos will fail and eventually be worthless. If that’s the case, that leaves roughly 50 cryptocurrencies worth investing in. 

So, how do you know which ones are worth investing in? 

Well, first off, you should identify which types of cryptocurrencies are good investments. 

There are various types of cryptocurrencies with varying purposes and use cases such as; payments, store of value, smart contract & dapp building platforms, decentralized finance (DeFi), stablecoins, exchange tokens, and more. 

While there are good cryptos in each of these categories, there is one category in particular that has proven time and time again to feature good coins to invest in. 

This category is exchange tokens. 

Exchange tokens are one of the few types of cryptocurrencies that are actually being used by real people and real companies. They have utility as they can be used to pay fees, grant users’ discounts, and provide access to exclusive exchange offerings. Exchange tokens are essentially backed by real companies that generate profit and utilize their tokens. 

Therefore, out of all the cryptocurrencies, exchange tokens are the closest thing to traditional stocks or shares of a company – something in which the real-world and traditional markets value.

That being said, if you couple these positive exchange token attributes with some healthy crypto speculation, these types of coins can perform extremely well. 

Now, if you had to boil it down even further and choose just one exchange token, my bets would be on Binance Coin (BNB) – the exchange token of the world’s most popular cryptocurrency exchange.

In the following article, we’ll take a deep dive into Binance Coin. We’ll look at its price action, its utility, level of adoption, it’s tokenomics, unique features, and the risks and challenges it faces. 

By the time you’re done the reading, you’ll have a fundamental understanding of whether or not Binance Coin (BNB) is a good investment. 

Binance Coin (BNB) - Summary

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Binance Coin (BNB) is the native exchange utility token of Binance – the world’s largest cryptocurrency exchange in terms of trading volume. 

Binance is a relatively new crypto exchange as it was only founded in 2017 by its CEO Changpeng “CZ” Zhao. The exchange offers a global trading platform where users can buy, sell, and trade hundreds of different cryptocurrencies. 

As well, the exchange supports an array of other products including:

  • Trading crypto futures
  • Trading on margin with up to 125x leverage
  • Lending and Staking products
  • Initial exchange offering (IEO) platform
  • Binance DEX (a decentralized cryptocurrency exchange platform)
  • Binance Charity (a crypto charity foundation)
  • Ability to buy crypto with fiat currency

As seen from above, the Binance exchange has its hand in just about everything and its cryptocurrency ecosystem is among the fastest-growing in all of crypto. 

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This, of course, leads to profitability and as of October 2019, Binance crossed $1 billion in cumulative profit and profited $183.5 million in Q3 2019 alone. 

Now, back to Binance Coin (BNB).

Binance Coin (BNB) Utility and Adoption

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- Source

BNB was initially launched as an ERC-20 token on the Ethereum blockchain but has since migrated to its own blockchain – Binance Chain.

The BNB token has a lot of utility within the Binance ecosystem and thus captures tremendous amounts of value. 

See BNB’s use cases below:

Trade Crypto with BNB
On both the global Binance exchange and the Binance DEX, BNB can be used to trade over one hundred different cryptocurrencies with the BNB trading pair. Also, BNB can also be traded on a plethora of crypto exchanges with various trading pairs. 

Pay Trading Fees with BNB
BNB can be used to pay for trading fees on the Binance exchanges. Binance charges a standard trading fee of 0.1% which can either be paid in the assets you’re trading or with BNB. If you choose to pay with BNB, you receive a discount on trading fees.

However, these discounts are only offered for a limited time. See below, the BNB trading fee deductions for the following years:

  • The first year BNB launched (2017) traders received a discount of 50%
  • In 2018 traders received a discount of 25%
  • In 2019 traders receive a discount of 12.5%
  • In 2020 traders receive a discount of 6.75%
  • In 2021 traders no longer receive a discount

So, up until the year 2021, traders are incentivized to buy and hold BNB for the purpose of paying trading fees. This has effectively increased the demand for BNB and has positively impacted the price of BNB.

Exclusive Access to Binance Launchpad
Binance has what’s called the ‘Binance Launchpad’ – an Initial Exchange Offering (IEO) platform where participants can purchase new cryptocurrencies. New crypto’s features on Binance Launchpad must be purchased exclusively with BNB. 

There have already been over 10 IEOs on Binance Launchpad where millions of dollars worth of BNB have been raised.

BNB as a Payment Method
BNB can also be used as a payment method for products and services outside of the Binance ecosystem. BNB is currently supported as a payment method at more than 30 different companies and is also partnered with 14 different crypto payment processors so that it can be used in-store and online.

Powering the Binance DEX
Since BNB migrated from Ethereum to Binance Chain, it is now the native cryptocurrency of Binance Chain and is used as fuel for transactions on the Binance DEX.

All in all, BNB has a wide variety of use cases and is heavily utilized within the ever-growing Binance ecosystem. This utility allows BNB to capture value and helps to make BNB a good investment.

Binance Coin (BNB) Price Action and Market Structure

Now that we have an understanding of what BNB is and what it's used for, let’s dive into Binance Coin’s price action and determine if BNB is a good investment today. 

The first thing to look for when analyzing a cryptocurrency’s price action is whether or not it has a good market structure.

For those of you who don’t know what market structure is, it’s simply the macro price action of an underlying asset. 

For a cryptocurrency to be considered a good investment it must maintain its market structure. If it breaks market structure, it shows little demand for the asset and indicates weakness as an investment.

Let’s see if Binance Coin (BNB) is holding market structure.

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The chart above shows Binance Coin’s price history starting from July 25, 2017, to December 18, 2019, on a linear scale. 

As you can see, BNB started the year off (2019) at around $6 and reached its all-time high of $38.54 on June 21, 2019. Since then, the price of BNB has retraced significantly, along with the rest of the crypto market.

It has already given back over 50 percent of its 2019 rally and is now approaching key price levels around $10. The $10 price level is a key level to watch as it is a major level of support. 

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However, if BNB falls below $10, it will more than likely fall down to its market structure level of around $5. 

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As seen in the price chart above, BNB has held the $5 level as critical support on multiple occasions and a breach of this level would be a breach of Binance Coin’s market structure.

All in all, I would say that as long as BNB holds above $10, it is a good investment. And if it were to fall below $10 and reach $5, it would have to hold the $5 level as support and push back above $10 for me to consider it a good investment. 

Binance Coin (BNB) Tokenomics

Apart from a cryptocurrency’s utility, adoption, and price action being vital metrics for judging whether or not it’s a good investment, another hugely important factor to consider is tokenomics.

For the uninitiated, tokenomics refers to the design of a cryptocurrency and its attributes that impact its value. Such attributes might include economic incentives, game theory, cryptography, and computer science.

In the case of Binance Coin, it’s tokenomics are very strong. It is literally designed to be adopted and utilized which increases its price. It also features a burning mechanism that increases the price even more. 

Let me break things down for you.

As previously mentioned in the ‘BNB Utility and Adoption’ section, BNB is utilized in 5 different ways; trading, paying trading fees, participating in IEOs, as a payment method, and as gas for Binance Chain and the Binance DEX.

Therefore, people are incentivized to buy and hold BNB as it can be used in a number of ways. And if people are buying up BNB and holding onto it, it simply reduces the supply. And if demand for BNB stays the same or increases, then so does the price. 

These are good tokenomics. 

Moreover, what makes BNB’s tokenomics even more interesting is that Binance has implemented a quarterly burning mechanism into BNB.

BNB Burning Mechanism

The way it works is:

Binance takes 20% of its quarterly profits and burns this amount of BNB tokens.

They have vowed to do this until 50% of BNB’s total supply (100 million BNB tokens) are repurchased and burned. 

The primary reason for burning BNB tokens is to better its tokenomics by reducing the coin’s total supply and thus positively impacting its price.

Since BNB’s launch in 2017, Binance has conducted 9 quarterly BNB token burns resulting in 14,525,153 BNB burned, equating to $170,000,000 USD in value.

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You can verify every single BNB token burn by tracking the burn transaction on the Binance Chain explorer.

Also, it’s important to note that Binance does not “buy back” BNB for the burn. Instead, Binance simply burns 20% of its quarterly profits of BNB that it already owns. 

This is better than a “buy back” program in which some cryptocurrencies and exchanges have because if you think about it, the only way to get the “cash” to do a “buy-back” is to sell their tokens first.

So instead of dumping BNB tokens on the market to get the cash to buy them back, Binance simply burns BNB tokens that they already own, which is better for the price of BNB and its holders.

All in all, BNB has excellent tokenomics that help to push the price up and encourage BNB adoption.

Conclusion

Binance Coin is one of the most popular cryptocurrencies as its ranked number 8 on CoinMarketCap. It’s also the leading crypto exchange token and is heavily utilized in the expansive Binance ecosystem. 

Therefore, if Binance manages to keep on expanding its product offering and onboard new users, I don’t see any reason why BNB wouldn’t be a good investment.

The price action of BNB has been quite bearish since June, but it still remains above key price levels and market structure. Therefore, since BNB has already corrected strongly from its ATH, I would say it’s a good investment now as long as it holds above market structure.

What do you think about Binance Coin (BNB)? Do you think it is a good investment?

Let me know what you think in the comment section below.


CryptoBoomer
CryptoBoomer

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