A growing DEX ecosystem, competitive futures platform and low fee incentives pushed Binance Coin to a new all-time high one day ahead of its scheduled token burn.
Over the past 6 months, Binance Coin (BNB) has been quietly rallying higher, gaining 189% during this period and notching a new all-time high at $46.90 on Jan. 18. This price peak happened just one day before its quarterly token burn, leading investors to question whether or not BNB price will move higher once the event concludes.
A token burn is a permanent removal of coins from circulation and this deflationary technique is a common practice used by many projects in the crypto sector. As Cointelegraph reported, the process does not destroy the coins but rather renders them unusable.
Aside from the supply change, Binance Chain recently launched smart contract capabilities which allow Decentralized Finance (DeFi) applications and cross-chain asset swaps to join. The exchange has also been wildly profitable since launch so al of these factors provide good reason for BNB’s appreciation.
When Binance Futures rolled out, the exchange announced that futures platform revenue would be included in its BNB quarterly burn. These coins taken out of circulation will reflect a percentage of Binance’s earnings for the latest quarter of 2020.
Despite being the absolute market leader on futures contracts, the ever-growing exchange launched this service fairly recently. Over the 16 months since inception, the platform has grown to a $4 billion open interest. This number surpasses more established derivatives exchanges like OKEx, Huobi and BitMEX.
Initially, Binance stated that it would repurchase the coins slated for destruction, but this policy changed in February 2019. Thus, the actual token burn process involves reducing the potential supply until it reaches the 100 billion goal.
The latest BNB burning round occurred on Oct. 16, 2020, and it involved a total of 2.25 million BNB. Although its reported supply stands at 142.41 million, Messari calculates a 108.35 million liquid supply. This difference comes from coins currently restricted or vested, meaning they are not actually being traded.
Binance Chain’s evolution
After launching staking and validation services in September 2020, Binance Smart Chain quickly started gaining traction. The network adds Ethereum compatible smart contracts capacity to the original Binance Chain.
Shortly after launching, a host of decentralized applications started to emerge, totaling 60 projects and 600,000 unique smart chain addresses. Furthermore, 3 million BNB have been staked by network validators.
To date, cross-chain assets to Binance Chain have surpassed $250 million, and a $100 million accelerator fund was created to attract decentralized finance applications.
Binance Launchpad is also another positive factor that supports BNB’s value. The platform hosts Binance’s Initial Exchange Offering (IEO) and in 2020 six successful token sales occurred.
Data from TheTie, an alternative social analytics platform, shows that the recent price spike was accompanied by a sharp increase in Twitter user activity. Although this is not a fundamental factor, data shows that the more attention a token gets on social media, the easier it becomes to gather additional buying pressure.
Many investors believe that token burns positively impact price as the supply is constricted and this supposedly incentivizes investors to hold their tokens rather than market sell them at each top.
Interestingly, the latest burn had little to no impact on BNB price. This situation could indicate that the market is evolving to price in these events ahead of the announcement date.
On the other hand, investors may have perceived a non-circulating token burn as a non-event. Therefore, those recently buying BNB with the expectation of a post-burn pump may be sorely disappointed.
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