Notes 7/19: BNB Danger at Binance, Tether’s Peg Still Off at Binance.US, and An Ether Sale

Binance burned $484 million worth of its native token BNB yesterday. Burning is the equivalent of taking tokens out of circulation. For a valuable and useful asset, that action should translate into a price bump because there are fewer of its numbers in circulation.

While BNB is mostly useless, previous burns of the token have inflated its price and market capitalization. That hasn’t happened this time around; BNB’s price has merely crawled to a 1% increase in the last 24 hours. As of this writing, it is changing hands for $242.30.

The Danger from BNB

Crypto traders are not particularly enthused about BNB right now because its foundations are looking increasingly shaky. Binance is the crypto world’s biggest exchange by trading volume. But its position is increasingly under threat from challengers after a crackdown by regulators against it in multiple jurisdictions. It is also buffeted by other problems – executive departures, increased dominance of dubious stablecoins at its exchange etc. – that threaten its existence.

BNB’s price has plummeted by roughly 37% in the last two months and the number of shorts against the token have multiplied. This indicates an illiquid market that is primed for a downfall.

The catalyst for this downward movement could come from within crypto. According to reports, a price of $220 for BNB will automatically liquidate $200 million worth of positions at Venus, a protocol that operates in the so-called decentralized finance (DeFi) ecosystem.

BNB’s current market capitalization is $37 billion. Therefore, liquidation of $200 million worth of its tokens should not cause much of a ripple in its price. But the crypto juggernaut’s contrivances and convoluted connections mean that this event has the potential to take down Binance.

The Proof of Reserves Connection

Consider that BNB comprises the biggest portion of Binance’s Proof of Reserves, a fraudulent measure that the exchange championed after the collapse of FTX last year. A liquidation of $200 million worth of BNB could be the kindling that lights a fire at Binance.

An identical script played out in a different geography and under different circumstances last November. FTX crashed into bankruptcy after the price of its native token FTT collapsed after a selloff instigated by CZ himself. Sam Bankman-Fried, the disgraced CEO of FTX and once a crypto savior, claimed that he was not aware of the hole in FTX’s balance sheet. To be fair, one cannot blame him for not bothering to keep track of worthless tokens.

Such admissions are not forthcoming from CZ right now. But that could change in the future as Binance’s financials are a black box.

Tether Peg Still Awry at Binance.US

Tether is still trading at a discount at Binance.US. As of this writing, the USDT/USD pair is changing hands for $0.79. It is worthwhile to remember that Binance’s international operations, which claims to have the biggest trading volumes in crypto, does not support the US dollar or, for that matter, any other fiat currency. The only way to exit a trade from Binance is through a stablecoin.

But Binance’s US operations offer redemption services for the cryptocurrency, meaning investors can exit their trade for fiat here. Exiting when the stablecoin is at par or close to its intended price target of $1 does not produce much profit. A off-peg kilter is a profitable trade for those who put money into Binance and Tether earlier and are now rushing out to cash their profits.

Ether’s Price Move

An unraveling at Binance is not the only news event of the day. Ethereum’s native token, ether, is also making news. CoinDesk reports that a wallet with over 61,000 ether, worth $116 million at today’s prices, has been transferred to cryptocurrency exchange Kraken. The wallet received the tokens as part of Ethereum’s initial coin offering (ICO).

Because this is an opaque crypto ecosystem that we are dealing with, the movement’s significance is cloaked in conjectures. “This movement could mean that holder is preparing to sell tokens, stake on an exchange, or diversify their holdings for other tokens,” CoinDesk writes.

Here, it might be take note of the choice of venue. Kraken has discontinued its staking program after the SEC filed a case against it. Diversifying into other tokens at a time when crypto is illiquid and the regulatory sword is closer than ever on dubious tokens also doesn’t make sense.

That leaves us with the first choice of a token sale. Ether’s liquidity is already down this year and its price has failed to make much headway. This might be a good time to sell.

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