BNB – Investing in shovels for gold diggers

  • BNB is a possible way to invest in the crypto market’s growth.
  • Binance has created more and more use cases for BNB, driving value up.
  • Founders own 40% of all coins. A founding member dumping BNB would decimate the coin's price.
  • Binance Coin is not the most exciting investment, but it might be one of the safest.

Investment Idea

Binance is the number one cryptocurrency exchange with $30bn of trading volume as of 2 September 2021.

Binance Coin, or BNB, is at the heart of its ecosystem. The coin is the native token of Binance Chain and Binance Smart Chain (BSC). With just 21 validators for BSC and 11 for Binance Chain, both efforts display ample centralisation.

Binance has created many use cases for its token, including low-fee trading on its exchange. This year, an increasing number of investors have held the token.

The Binance leadership has shown a ruthless approach to growth. While originally without KYC measures, and with undisclosed company headquarters, CZ wasn’t shy in introducing mandatory KYC, within 24 hours, when regulatory headwinds picked up steam.

The sheer size of Binance, and their focus on survival and growth, could make BNB a solid choice for investing into the crypto market’s overall growth.

Potential

BNB’s price moves in sync with the crypto market’s capitalization. Binance allows the trading of over 1,300 trading pairs. Binance's total trading volume is six times that of Coinbase. A good chunk of the total market activity happens here.

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CZ’s flagship exchange continually expands use cases for BNB. Its leadership is highly incentivised to do so in the future. 40% of the total BNB ever created was distributed among the founders. Currently, this share is worth more than $35bn.

If you expect the cryptocurrency market to grow and want a liquid means of covering it, with no management fees, BNB is a very rational choice. The coin is highly deflationary. Binance burns a portion of the original 200m tokens, every three months, until the final supply reaches 100m Binance Coins.

Risk

Risk falls into three major categories:

  1. Regulatory risk: With a highly visible and centralized operation, the exchange is a prime target for regulatory ire.
  2. Market development risk: BNBs value rises and falls in tandem with market activity and volume. The next ‘crypto winter’ will also be a ‘BNB winter’.
  3. Centralization risk: With just 11 validators and 40% of all coins in the hands of Binance founders, BNB is vulnerable to malicious actors of a disgruntled C-level employee.

So far, the exchange has suffered surprisingly little from the news that their US CEO left, UK regulators banned the exchange in June, and they introduced mandatory KYC with very little warning. Trading volume remained high, showing unaltered customer trust.

Binance is miles ahead of its closest competitor, but crypto investors move quickly. Loss of trading volume would affect BNB prices significantly.

Conclusion
BNB’s price seems to be tied to market volume. Binance's leadership has created multiple use cases for BNB, adding more value for investors. Major risks are regulatory scrutiny, disgruntled leadership and competition along with overall market downturns. Binance Coin is not the most exciting investment, but it might be one of the safest.

Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.

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