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

But Binance has serious issues. The exchange was sued by the SEC Monday, accused of a laundry list of offences. Without getting into the meat of that much-discussed topic, here are some of the headline allegations:

But this is not a piece about the lawsuit. I have written plenty in the past about Binance, including this deep dive last year where I bemoaned its complete lack of transparency. In truth, I’m a bit sick of talking about Binance. 

Binance refuses to verify anything, instead we are forced to blindly trust CEO tweets assuring the world that all is OK, and that these countless investigations, lawsuits and complaints are unjustified witch hunts. And maybe they are exactly that. But for a company with trillions of dollars of trade volume and such systemic importance to an entire industry, a tweet is not a good enough substitute for an audit. It’s not acceptable. I’ve asked it before and I still don’t know the answer, but whatever happened to the crypto mantra of “trust, don’t verify?”. 

yes, but liabilities are harder. We don't owe any loans to anyone. You can ask around.

But I digress. Let’s park the exasperation around the state of the industry and take a look at how Binance’s travails tie into the price action of its native token, BNB. 

BNB is Binance’s native token. It is used for a variety of functions across its ecosystem, with the ability of holders to avail of lower fees on the platform being one of the most common. 

I’ve said in the past that when breaking down price charts of cryptocurrencies, they all more or less trade like levered bets on Bitcoin. Bitcoin goes up, altcoi goes up more. Bitcoin goes down, altcoin goes down more. Simple.

With BNB, that has largely been the case (as I will show with some charts shortly). But there are a couple of notable divergences from what you would expect. 

Firstly, in 2023, there has been a tangible break in trend. BNB is strongly underperforming the usual benchmarks.  

The above chart summarises this. Despite a buoyant six months for crypto prices that has seen Bitcoin and Ethereum jump 60% and 53% respectively, BNB has only added a relatively anaemic 5.6%. If someone had told you at the start of the year that the Nasdaq would be up 27.5% and Bitcoin up 60% by June, you would have assumed BNB would be printing dizzying gains. 

But things have changed for Binance in 2023. Firstly, the exchange’s dominance appears to be falling. The below shows the lay of the land entering 2023. Binance commanded two-thirds of the trading volume of the entire space, as mentioned above. The second placed exchange, Coinbase, sat on only 8%.  

Two months into this year, however, that share was down to 57.5%, according to CC Data. Today, it is down to 43%. That means there has been a 24% fall in market share in six months. And the big reason is, you guessed it, regulation. 

The shutdown of the Binance-branded BUSD coin in February was a blow for Binance, being the biggest driver of liquidity on their platform. Then there is the CFTC case, accusing Binance of operating “an intentionally opaque common enterprise”. And now the SEC has come calling. 

So, how will all this affect BNB’s price action? Well, as hinted at above, let’s now take a look at how BNB trades against Bitcoin. The below chart displays the performance back to the top of the bull market in November 2021:

This immediately highlights the lockstep relationship the two assets have. But if you look closer, it also shows something else which is unusual. Despite this chart accompanying a fierce bear market, BNB has outperformed Bitcoin, which altcoins simply don’t do. In bear markets, Bitcoin falls and altcoins fall way, way more. 

Look at the above chart again. The relationship is symbiotic until around May/June 2022, when BNB jumps ahead notably. The two assets still trade in a highly correlated manner, but BNB is further north on the chart. On the contrary, nearly every other altcoin has done the opposite in this timeframe – broken down and underperformed Bitcoin significantly, as the wider crypto space took a beating. 

To illustrate how well BNB has done in this period, let us adjust the above chart to zoom in on this period from May 2022. 

Of course, this period starts in May 2022, when UST death spiralled to zero and sent the entire crypto market into chaos. Soon after, Celsius went poof, and the crypto bull market which surged so ferociously during the pandemic had finally been toppled. 

BNB’s growth reflects Binance’s mushrooming market share and growing dominance of the cryptocurrency space during this time. With rivals dropping by the wayside, Binance grew larger and larger. Remember that stat saying 67% of trading volume took place on Binance by the end of the year? At the start of 2022, that metric was 48%. Binance added 19% market share in a year, as crypto peeled back and competitors struggled mightily. And its native token, BNB, outperformed as a result. 

But the dominance of Binance has trickled down this year, as described above. And with that falling dominance, BNB’s price action is flipping. The previous chart shows a sharp dip over the last few weeks. At one point in April, BNB was down only 7% from its value in May 2022, prior to the Terra collapse. Bitcoin, on the other hand, was down 20%. Today, BNB is down 31% compared to Bitcoin’s 29%. 

This is largely due to the SEC’s lawsuit this week, which has tanked BNB’s price 15% while Bitcoin is down only 2%. It feels like BNB and Binance’s tremendous outperformance of both Bitcoin and the crypto market at large is finally over. 

This is without even mentioning the liquidity of the BNB token. The liquidity of the BNB token is also notoriously low compared to other “blue chip” cryptocurrencies. Out of all the top coins, BNB’s position as number four in market cap is the most out of whack with its underlying liquidity, which compares very unfavourably to the coins around it. The shutdown of BUSD has also not helped matters here. 

This is often the case with native tokens, and should be mentioned as an additional reason for prudency among investors. But getting back to the price action, the reality is that BNB will go as far as Binance does. The outperformance throughout 2022 compared to the rest of the market highlights the tremendous run Binance has been enjoying, gobbling up market share and becoming the biggest cryptocurrency company on the planet. 

But things have changed and the future is now laced with uncertainty. The legal cases in the US are mounting, and the severity of the situation cannot be understated. If Binance’s American subsidiary is kicked out of the US, that is a colossal blow. The token may have fallen 15% this week, but if the biggest financial economy in the world is cut off from Binance, you can multiply that price drop by an order of magnitude. 

BNB’s market cap remains dizzying at over $40 billion. Crypto is notoriously volatile and impossible to predict short-term, and this could easily jump up in the coming weeks. I really don’t know, and I would never spoof a half-hearted prediction just for the sake of it. 

But I view the BNB token as quasi-equity in Binance (albeit with far more uncertainty compared to conventional shares in a company, given the cloudy nature of the liquidity and some of the tokenomics involved). And in that context, and with the tailwind of Binance’s superhuman performance throughout the bear market seemingly nullified, I just want no part of this at a $40 billion valuation. 

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

The post BNB price analysis amid Binance’s shrinking market share & SEC lawsuit: Report appeared first on Invezz.

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