Binance Coin, or BNB, saw an unprecedented jump in prices and was trading at $353 on Friday. Compared to the $40 it was worth at the beginning of February, that’s a 782.50 percent return. What’s the real fuel in the rocket and how did this happen?
A Little Context
The financial world has seen a significant shift in the direction of cryptocurrencies lately as alternative investment assets. Loose monetary policies and ballooning fiscal deficits have reduced the appeal of safer investment assets, including bonds, which now return historically low-interest rates, despite a climb in their yields in 2021.
On the other hand, cryptocurrencies are booming upward. Bitcoin (BTC), Ether (ETH) are the frontrunners, now trading near $59,494 and $2,002 respectively. Binance Coin comes third following its explosive rally this year. The token works as a default settlement asset in the Binance ecosystem, which consists of a cryptocurrency exchange, two blockchains, a startup incubator, and many more.
As Binance’s clientele grows, so do the demand for its BNB tokens.
The shift towards incorporating digital assets is not sudden. But, it has a significant impact on the rising prices across the cryptocurrency market, including BNB. Tesla, Visa, and PayPal are among the big companies that made steps in this direction by accepting payments in crypto and allowing crypto-transactions on their platforms.
PayPal even launched a crypto-checkout, where clients can now use their bitcoin, bitcoin cash, ether, and litecoin to pay for merchandise they buy in millions of stores online. Arguably, this was a move to obtain more digital coins for themselves, rather than push cryptocurrencies to become more mainstream.
Nevertheless, the prices did go up significantly after each of the mentioned companies got involved. BNB seemed to gain even more value in the percent ratio, given that booming crypto adoption leads people to exchanges, and Binance could benefit from it the most.
Binance Blockchain Launch
BNB, as an ex ERC20 standard token, initially functioned atop the Ethereum network.
Binance launched its own blockchain in September 2020, dubbed as ‘Binance Smart Chain.’ The firm later expanded the platform to include additional features such as smart contracts, bringing itself in direct rivalry with Ethereum. Binance’s blockchain grew to include 60 projects and 600,000 smart chain addresses. Subsequently, network validators on the chain staked $3 million worth of BNB.
Since Binance smart chain appeared on the scene it offered lower transaction fees and quicker confirmation time than the Ethereum network, thus became a valid competitor to the latter.
Quarterly token burn
Token burn is the permanent removal of coins from circulation. This move is not popular with the two largest cryptocurrencies: bitcoin and ether, but Binance has employed this strategy before and continues to do so, to provide greater incentives to investors. It’s basically a deflationary mechanism, aimed at raising the price of a given coin.
The analysis of the cryptocurrency market shows that token burning is a valid way to affect the desire of holders to hang on to their digital assets, rather than sell them, which raises the value of each holder’s existing balance, and consequently, the price of the coins on the market.
BNB: What to Expect?
Given all the reasons listed above, BNB saw a rapid increase in value, which is not stopping any time soon, but according to WalletInvest, there is going to be a stagnation in the rate of the increase. The rise in Feb 2021 was drastic, but will it continue rising at the same rate? Probably not.
However, predictions made by LongForecast are much more reassuring. They see BNB rising in value up to $1121 by the end of this year. Only time will tell if the prediction is accurate, in the meantime, the excitement over the recent events gives high hopes for a successful investment opportunity.