The world’s largest crypto exchange, Binance, is destroying its own tokens to increase the value of the coin in the longer term. Although at first this may seem like a big financial loss for the stock exchange, there is an interesting idea behind it. Nevertheless, the community is sceptical about the “Coin Burns” every quarter and the campaign could go rather wrong for Binance. How the price of the Binance Coin is developing and what lies behind the destruction of the tokens can be found at Coin Hero!
Binance Announces $17,000,000 BNB Coin Burn in Q5 Recap #bitcoin #btc #eth https://t.co/hI6rMGpOGe pic.twitter.com/UXYZuFV9dE
– Coin Spectator – Real-time cryptocurrency news (@coinspectator) October 18, 2018
Coin Burns – An appreciation?
The idea behind the Coin Burns is well thought out: Every quarter Binance buys back tokens from investors to destroy them. Of the 200 million NBBs, about half are to be destroyed over time in order to increase prices and stimulate trade in NBBs. In the meantime, the announced campaign has already been carried out five times. In July 2018, coins with a value of 33 million US dollars were destroyed, and in October the sum was 17 million US dollars. According to CEO Changpeng Zhao, every quarter Binance uses 20% of its profit to buy and destroy the coins.
The original 200 million NBB were issued at that time to raise money from investors for the construction of the stock market. The promise to repurchase half of them – most likely at a higher price than when they were sold – should be the reward for investors’ confidence. With the destruction of the coins the price is to be driven up by the smaller offer. In itself a clever strategy, which unfortunately does not necessarily work out, because during the previous Coin Burns no significant increase in value could be heard.
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And much more…https://t.co/Bo0ZuxNR36https://t.co/XLfnvFmBQ7 pic.twitter.com/zgKbhvVBKw
– Nauticus Blockchain (@nauticusen) October 18, 2018
Economic Theory in Practice
Who wants to increase the price of a product, must reduce the offer. That’s how simple the train of thought behind the drastic steps taken by Binance is. They even go so far as to call the Coin Burns dividends for investors. This type of potential price increase is a reward for support in building the exchange and should further boost trading in crypto currencies. This type of profit distribution has many advantages, as Changpeng Zhao explains. There are almost no commission costs, no tax or legal implications and less work for the entire Binance team.
So the Coin Burn has some financial advantages, but of course the price increase is in the foreground. One must not forget, however, that the value of a crypto currency is not subject to any real equivalent value. How the price changes depends mainly on news, information and forecasts from experts, as well as market demand. If the Coin Burns should arrive badly with the Community, a price low could be produced here just as well. However, the Binance team seems to take this risk voluntarily. The Binance Coin currently stands at USD 9.76 or EUR 8.51. In terms of market capitalisation, BNB is currently ranked 14th among the most valuable crypto currencies, but has not yet been accepted by other brokers such as eToro. Whether the Coin Burns will change this is questionable.
With Binance Coin’s Coin Burns, the stock exchange wants to boost the price of tokens and reward investors for their trust and support. It remains to be seen whether the share price will soon move upwards or whether the community will turn away from BNB!