BNB coin burn is a quarterly procedure conducted by the Binance exchange to reduce the number of free cryptocurrencies. It is planned that token burning will be carried out until the number of coins decreases from 200 million to 100 million. BNB token is a blockchain-based asset issued to all participants of the Binance exchange, with an aim of creating a discount when paying for traded assets. The cost of BNB is 1 eth = 200 BNB or 0.05% – 0.1% depending on the current price level of Ethereum (ETH).
Binance traders receive discounts when choosing BNB as a payment instrument. It can also be used to purchase tokens as part of exclusive ICOs or simply trade it in pairs against other cryptocurrencies. Among the ways to make money is stacking in the Binance Smart Chain network. BSC validators are also rewarded for validated Binance Coin transactions. Binance Coin also attracts investors - its rate is growing steadily, which is largely due to token burning.
Why burn?
BNB coins are burned every quarter. This means that all the unsold coins will be destroyed and this figure will decrease with time.
In April 2021, the cryptocurrency exchange Binance conducted the largest, at least in dollar terms, burning of BNB tokens. The total value of tokens burned exceeded $595 million. Understanding the token burn procedure is important, but first understanding why it's being done. Every quarter, Binance allocates the fifth part of its profits to buy back BNB tokens and then permanently remove them from the blockchain. This is the burn, the purpose of which is to reduce the number of coins in circulation. Why reduce the volume of circulating Binance Coin? To prevent inflation and depreciation amidst new coins in circulation. Reducing supply - burning - while maintaining demand can also push up the cryptocurrency exchange rate.
How does it happen ?
BNB token burning occurs every three months: the largest and 15th token burning took place on April 16, 2021. To buy back tokens that are being offered on the network, Binance allocates 20% of its quarterly profits. This means that the volume of coins purchased by the company may vary. Fluctuations in the cryptocurrency's exchange rate also make their own adjustments. In January 2021, at the rate of $45 Binance bought and burned 3,600,000 BNB, and their valuation was $166,000,000.
And already in April, at a rate of $540, 1,100,000 coins were burned with a total value of $595,000,000. Accordingly, the percentage of tokens burned ranges from 0.4% to 1.8%, and the event may have a greater or lesser impact on the market. The exchange plans to continue burning its token until only half of the total supply of 200,000,000 BNB remains - 100,000,000.
Market reaction
Burying unused BNBs can lead to a decreased supply while maintaining demand for coins will make them more valuable. In practice, the connection between coin flaring and a rise in coin prices raises questions. Indeed, in April 2021, even before the burning there was an increase in the rate of BNB, which was partly due to the excitement among traders - the event was advertised in advance as the largest in the history of the project. From April 1 to April 16, the price of Binance Coin went from $300 to $530.
After the burn, the market was unstable for some time - the value of the token dropped below $500 and approached $600 with varying success. In early May, the cryptocurrency consolidated above $600. However, the forecast of reaching $ 1,000 after Burning obviously didn't justify itself.
The burning in January 2021 of a record 3,600,000 BNB, at first glance, had no effect on market behavior, even adjusted for the overall positive sentiment that engulfed the crypto industry - prices remained within $40. In February, BNB reached its local high of $330. Some attribute this to the delayed reaction from traders following the removal of tokens from circulation. The 2020 charts clearly show that Burning had no impact on the coin. During this period, BNB held steady in the $15-30 range.
Binance is heavily dependent on media attention, as seen in its steep return to below $600 since Tesla abandoned bitcoin.
Prediction for 2021-2022
A number of factors could give BNB further momentum:
- further reduction in token supply;
- launch of successful ICOs/IEOs;
- new entrants to the Binance Smart Chain ecosystem;
- Binance launches new products using BNB.
Analysts are inclined to believe that Binance Coin will continue to grow in 2021-2022. According to Coinpedia, the token will continue to trade between $500 and $700 in 2021, with a rise to $800 by the end of the year - the market is historically strong during this period. A return to $700 is possible in early 2022, with a rise to $1,000 by June and $1,800 by the end of the year.
A similar scenario is being considered by the Longforecast team. In June 2021, the cryptocurrency will continue to gain momentum, approaching $800. In July - the period of the next combustion - a fall below $ 700 with a further return to the uptrend is possible. The range for BNB by the end of 2021 is $1,100-1,300. As for 2022, a burn in a traditionally weak January will not affect the token's exchange rate. On the contrary, burns in April, July and October will lead to $2,000.
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