It all started with the SEC suing Binance and Binance.US in early June for various reasons, including operating an unregistered exchange. While Binance vowed to fight this legally, it has strongly affected its operations and the outlook for its native token BNB. We analyse key trends that you, as an investor, should be aware of.
1. Steep decline in market share
The SEC's lawsuits and investigations against Binance have led to a decline in user confidence and a substantial decrease in trading volume. According to data analytics firm Kaiko, Binance’s global market share fell by nearly 8% since last month, from 60% to 52%. Its US market share slumped to 0.9% as of June 26 from more than 22% recorded in April.
While Binance continues to be the most preferred trading platform ex-US, its share can go down further in upcoming years if other markets also crackdown in terms of regulation. Case in point – Binance can be used by Indian investors currently though it does not deduct 1% TDS on a crypto sale which is mandated by the Indian government.
2. Binance is slashing its workforce
Amid ongoing investigations by the US and global regulatory intermediations, approximately 1,000 employees have been laid off by Binance including in India. Moreover, it is suggested that the company may lose over one-third of its staff by the time they are done with the cuts. This comes on top of the woes that Binance has been grappling with — resignations by high-profile executives in response to potential DoJ charges and SEC lawsuits on alleged illegal operations and misuse of customer funds.
At the start of the year, Binance suggested that it will increase its workforce. Clearly, it hasn’t been going according to plan.
3. BNB has underperformed in 2023
BNB, at $244, is currently trading well below its key moving average of around $280 after falling from above $300 a token in June. This is concerning given that while other altcoins have rallied well in some weeks, BNB continues to be range bound. It seems to have found a floor (the low from FTX crash) that must hold for the token to stay above $200.
BNB/USDT pair. Source: TradingView
However, BNB token is being heavily shorted due to negative funding rates implying strong selling pressure. Data by Coinglass show that open interest and volume-weighted funding rates in perpetual futures have slipped to -0.18%, the lowest since late April – which is a worry.
4. The product itself is evolving well
Earlier this week, Binance completed its integration of the Bitcoin Lightning Network. As a result, users can expect a more seamless and efficient Bitcoin trading experience. Transactions will be faster, as well as cheaper. This is pertinent given the emergence of Bitcoin Ordinals that drove transaction fees high earlier this year.
The exchange also completed its quarterly burn process worth over half a billion dollars. CZ, the CEO of Binance, announced the same on Twitter while discarding some speculations that are currently spreading online.
BNB burn is a quarterly event in which Binance destroys some BNB tokens to reduce its circulating supply, which can theoretically increase the token’s price. It also demonstrates a commitment from the exchange that, operationally, all is well.
Key takeaway
BNB has been a top performer in the last cycle given the economics around it being the native token of the largest exchange with which users can offset fees and other use cases. However, it is being stress tested this year and its future may be linked to how Binance navigates its regulatory scrutiny. Binance continues to be the most-favoured exchange globally and has a fair chance to rebound from these troubles. This may play out over a few years and should not be expected to resolve in the short term.
In the interim, until BNB bounces above $300 and holds the level as support, investors should be prudent to not gain significant exposure to the asset.
