Binance, which is one of the largest crypto exchanges in the world, recently announced its tenth BNB burn. During the event, the exchange burned $38.8 million worth of BNB. These burns take place quarterly and this time, the exchange burned 2.216 million BNB tokens. The burn took place from October to December 2019. These burns have been taking place for over 3 years now. The aim is to reduce the total supply of BNB to 100 million from 200 million created initially.
The Largest Burns
This burn is the third-largest burn. The largest burn was $40.3 million worth of BNB. Thus far, the exchange has managed to burn 8.45% of all the BNB tokens. It leaves another 87.536 million BNB that will be burned in the coming quarters.
Why They Burn The BNB Crypto
Burning tokens are similar to stock buybacks that are done by companies in the traditional financial world. Due to reduced supply, the price of BNB should rise from a mathematical standpoint if demand continues to improve.
BNB tokens were first burned when the tokens ran on the Ethereum blockchain. While burning varies amongst crypto projects, the mechanism is quite similar. This burn is based on the trading volume in that quarter. For this burn, the figure they relied on was for October to December trading volumes. In the first burn, the exchange burned 986,000 BNB tokens.
The burning to tokens was popularized by Bitfinex, which began buying back its LEO tokens, which they later burned. Bitfinex aimed to reduce the supply and thus raise the price. For Bitfinex, the goal is to keep buying back tokens until they achieve 100% redemption.
Since the burn, the price of BNB appears to be experiencing a surge. This trend has been going on since later 2019, in line with the general crypto market. However, the BNB is down by 72% from 2017 all-time highs during the major crypto bull run.
CZ Does not believe it will affect the Price
When the Binance CEO, CZ was asked if this would affect the price, he said no. He added that many people didn’t understand how burns work. Following the BNB burn, the Binance CEO said he expected much more from the exchange’s team. He said that 2020 was going to be the year of adoption.
He noted that this year would be the year everyone understands the true potential of crypto and blockchain technology. The CEO said that Binance expected to play a major role in the adoption of crypto and blockchain technology globally. To achieve this, he said the exchange would expand its fiat-to-crypto options, offer better services, and create a more cohesive blockchain ecosystem. The CEO noted that while we were barely two weeks into 2020, the market cap for the crypto sector had grown from $192 billion to $254 billion.
Not All Burns Create Crypto Price Rallies
It’s important to note that not all burns create crypto price rallies. If this were the case, everybody would be doing burns correct? In order for price to increase in any asset, you need to have demand. If we remember the XLM Stellar burn back in November of 2019, everybody predicted the price would rally. Of course, markets tend to do the opposite of what the masses are predicting. With this being said, XLM actually sold-off after the large burn. Many investors / traders now blame this on decreased use case etc, but it’s always important to assess the cryptocurrency that is doing the burn. There can be various reasons this approach is taken… and not all of them are positive reasons.
