Binance: Regaining Its Footing After Experiencing The Worst

Binance Coin USD (BNB-USD) has been surrounded by scrutiny and skepticism in the past year. After the notable market meltdown in 2022, multiple shocks led to the sudden collapse of digital asset foundations, such as the FTX (FTT-USD) fallout.

Unsurprisingly, BNB-USD did not avert the pessimistic view of investors and analysts. Additionally, its recent controversy has eroded its value to many mainstream investors. Despite the founder’s assurance, we have seen it in the outflows in 2022.

Nonetheless, its trading price is not moving sideways after gradual rebounds and sharp drops. We can attribute it to its sensitivity to external factors, such as the US macroeconomic indicators.

Despite its high volatility, BNB has shown predictability at some levels. Most importantly, its Bitcoin (BTC-USD) balance remains relatively stable than all its peers. With that, I don’t see Binance as another FTX in the making.

As of today, we have to weigh the potential opportunities and risks that lie ahead. This crypto exchange giant still reigns the market as it continues to leverage the weakness of its competitors. Its potential to have a sustainable rebound may not materialize very soon, but hope still floats. And as a market leader, BNB continues to show a competitive advantage over its peers.

External Factors Affecting BNB Price Patterns

Binance: DOJ settlement

Binance has been subject to a money laundering investigation by the DOJ since 2018, which has put downward pressure on its trading price. Although several prosecutors were skeptical about the substance of the evidence, they were divided over filing criminal charges against BNB’s executives and founder for a long time.

This has become costly for BNB, especially during the market plunge in 2022. It also contributed to the notable crypto outflows in BNB. As such, it had to implement stringent measures to maintain liquidity to cover all legal expenses and potential capital outflows.

In November 2023, it did not come as surprising news when BNB settled with the DOJ, resulting in a $4.3B fine. Changpeng “CZ” Zhao agreed to plead guilty to violating the US anti-money laundering requirements and step down as its CEO.

In only a few hours, BNB’s price dropped by 8.3%, halting the two-month upward streak of its price. From the $230-250 price range, it decreased to $210-230 to create a new support level. Nonetheless, BNB continued demonstrating its resilience as its price recovered after a few weeks.

Economy

The cryptocurrency market has always been notorious for its high risk and volatility. Over the years, it had shown sharp crests and troughs, resulting in its bubble burst in 2017-2018.

By 2021, it peaked again and set a new all-time high. Bitcoin, for example, broke $60,000 at the end of 1Q21. It reached its highest point of $68,000 in November of the same year before crashing below $20,000 in 2022.

Cryptocurrency exchanges were no exception, as they directly operated with cryptocurrencies. Even a giant like Binance could not cushion the blow of market correction. Investor sentiments and the boom of fiat currency affected the market.

Amid all these, one thing seemed to have a massive impact on crypto exchange trading prices. Macroeconomic indicators have also been volatile in the past year. Inflation skyrocketed and reached 9.1%, the highest rate in four decades.

We can notice the pattern between inflation and BNB’s stock price. As inflation accelerated and peaked in the first half of 2022, its price dropped.

In subsequent months, the price gradually increased as inflation started decelerating. It did not return to its previous highs, though, which we can attribute to interest rate hikes. Households and businesses should increase liquidity during elevated prices and interest rates. It was no surprise when investors wanted to withdraw their capital or shift to less volatile or more liquid assets.

This is one of the reasons I’m watching out for its potential rebound this year. Inflation regained its speed in 3Q23, leading to another downtrend in BNB. But as it decelerated again in November, BNB’s price rebounded despite the recent controversy it had been through.

Indeed, Binance and inflation have a strong inverse correlation. BNB has yet to sustain its increase to avoid a bull trap. Nonetheless, the price seems more stable today as inflation becomes manageable.

This year, the US economy can become more manageable as holiday spending splurge eases. Inflation may stabilize as gasoline prices decrease. So, the Fed can keep rate hike pauses or even cut rates.

These expectations are attainable since the labor, real estate, and stock market are far from the Great Recession. There may also be improved purchasing power and business sector stability.

Amid all these, BNB may recover once it has adequate liquidity after the DOJ settlement. The BNB price rebound will take more time and effort. Given this, investors must still watch out before buying during price dips. They must also look into its statement of assets.

Why Binance May Stay Solid

Investors and analysts alike became wary of Binance after its executives and former CEO Zhao pleaded guilty to violating the US Anti-money Laundering Act. This tarnished BNB’s reputation regarding transparency, which is crucial in a highly volatile market.

It also led to a temporary cut in its price and coin outflows, reducing a considerable portion of its market share. At the end of that month, its market share dropped to 30.1% versus 55% at the beginning of the year.

Even so, Binance appears to be a giant who can get back on its feet in no time. Although the market is still a bit shaky, Binance’s one-month price trend appears to be rosier than expected.

Also, it still holds the largest portion of the total market share, maintaining its dominance. These are the factors that may help Binance withstand external shocks and rebound.

Financial Positioning

The past two years have been quite challenging for Binance. Before 2022 ended, Binance had about $68B in digital assets. The total amount was adequate to sustain its operations amid market disruptions.

But the story did not end there as it bled a considerable portion of assets less than two months after peaking in November. During that period, Binance lost about $15-20B. About $10-15B billion were due to foregone assets, while the remaining $5-10B was for BTC and other coins. These massive and sudden reductions took place after its transparency release.

At the end of 2022, BNB had $52-54B in assets. Other estimates were more pessimistic as the value only ranged at $48-50B. Nonetheless, it was still a high amount, considering the FTX collapse. Also, it had $44B in market capitalization, while the margin ranged from 12% to 20%.

In 2023, these disruptions seemed to have gone into a lull. Thanks to the stabilizing macroeconomic indicators that lessened investor woes.

In November 2023, or one year after the FTX collapse, it was BNB’s turn to face a new challenge. Its executives pleaded guilty and agreed to settle over $4B with the DOJ. This caused a temporary drop in BNB price as this event drove some investors away from BNB. But not a month later, BNB price started to regain momentum after previous warnings about buying during price dips that may lead to a bull trap.

Investor and analyst confidence about its capacity to sustain its business may have driven the slight uptrend. It is worth noting that Binance has $77.83B in digital assets. It also has $48.12B in market capitalization, showing sustained coin inflows and price increases.

Hence, BNB has enough assets to cover its settlement payments in just a snap. After all, it’s only 5.5% of BNB’s total assets.

Binance Proof of Reserves

Since BNB made an enormous settlement amount of $4.3B fine, we should also consider its proof of reserves. Before proceeding, we can compare BNB to Kraken, which settled $30M with SEC in early 2023. But we must remember that Binance is a far larger crypto exchange with a much larger spot trading and capital pool.

The good thing is that BNB has never heavily relied on BNB reserve tokens. BNB tokens only comprised about 4% of the total digital assets that BNB holds. This contrasts the FTX collapse, driven by its high reliance on its token for reserves. There was a narrow diversification of token allocation, limiting its margin for safety. So, as its holders exited, FTX instantaneously crumbled and collapsed.

Additionally, we can see that each asset in BNB’s proof of reserves is overcollateralized. The combined amount of Tether (USDT) and BUSD (BUSD) alone comprise over $3.2B in BNB’s fund surplus.

If we start factoring BTC and Ethereum (ETH) assets, BNB can pay the settlement amount in full. Assuming that the net surplus value is correct, the probability of a bank run is very low.

Also, Binance BNB secures the top spot for having the highest BTC balances of 549,661.92. This 9% increase from the last 30 days shows rebounding investor confidence and prudent reserve diversification. The image below shows the ten crypto exchanges with the highest BTC balances.

Of course, BNB must be careful today as more government agencies monitor its operations. They are more particular with BNB’s BTC inflows since it is the largest cryptocurrency in price, volume, and market capitalization.

Investor Demographics and Preferences

Over the years, the crypto market has been surrounded by pessimism and controversies for its high volatility and low transparency. Yet, it still expanded and catered to business establishments. It has led to many traders incurring bankruptcies, especially after the 2017-2018 crypto bubble burst.

But the sharp price changes also created many millionaires in the market. That is why cryptocurrencies, particularly Bitcoin and Ethereum, now serve various purposes.

For instance, a lot of BTC traders now use BTC to build up their retirement savings. To that end, many Bitcoin IRA platforms are already appearing to cater to traders’ needs and preferences. Before, the market mainly targeted younger adults. But now, it is already popular across all age groups.

BNB enjoys all the spillovers in the crypto market, given its market standing and presence. It is evident in its current Bitcoin balances and levels of its tokens for reserves.

Binance Valuation

We have already assessed the price of BNB using external factors, especially macroeconomic indicators. However, it was more concerned about historical changes and could not guarantee accurate valuation.

While the historical patterns are logical, we must still try to predict potential movements to help investors decide. Many other factors continue to drive its recent fluctuations besides those listed above. As such, we will look at the price change itself and attempt to do a technical analysis.

After the continued decrease in 3Q23, BNB rose again in October and November. It dropped after the controversy in mid-November. But since the second week of December, BNB has rebounded and is about to approach its high from the second quarter of 2023.

Also, it has risen above my previous resistance level of $275. Now, it seems to be the newest support level. This can also entice and confirm new trader entries.

As BNB expands again, potential buyers can wait for a dip to $280 to help them avoid a bull trap. For the bullish trend to persist, I am setting the new support level at $270-274. We can also set a new resistance of $325-330. But we must watch out for dips below our new support level since it will indicate a bull trap.

It may also be used to confirm whether the recovery since October can outweigh current sentiments, given the high inverse correlation between BNB price and inflation. If true, BNB sellers can set a base of $250 as a new low level.

Bottom Line

Binance Coin USD may become a massive rebound-drop mix this year. It still faces headwinds after transparency issues resurfaced recently. Even so, it maintains a solid market positioning to prevent the fate of FTX. BNB also capitalizes on its size and popularity while remaining conservative with its low reliance on BNB token reserves. Potential growth avenues must be noted, although investors must watch out for risks.

The new price pattern of Binance remains to be seen, although I’m optimistic. And if inflation continues to stabilize, Binance’s uptrend may continue. But for now, the current price is much higher than it was a month ago, so buyers must wait for a better entry point, perhaps $280-284. The recommendation is that Binance is a hold.