The price of Binance’s platform coin, BNB, is in freefall after the exchange switched its token burn method.
Since the burn on July 12, the price has fallen off a cliff, dropping from $31.69 per token at noon on July 12, to $27.91 per token at press time, a drop of 11 per cent, and a marked difference to earlier this year when the exchange’s native token appeared to be on steroids, skyrocketing in price more than six-fold since January.
The reason? It looks as though investors are pulling their money out of the asset following the news that Binance’s eighth quarterly token burn would destroy tokens held by the Binance founders and executive team, instead of burning tokens that were already in circulation on the market.
Every quarter Binance buys back tokens before “burning” or destroying them, and in the last couple of years it’s burnt between 808,888 and 2.5 million tokens in this way each quarter. On July 12, 808,888 tokens valued at nearly $24 million were burnt.
The aim of the burn is to reduce supply of the asset, and to increase its price.
In fact, in the same time period as above the overall market capitalization of the asset has taken even more of a hammering, suggesting investors are unsettled with Binance’s new method of burning tokens.
Around noon on July 12, BNB had a market capitalization of almost $4.5 billion, while at press time it had shed close to $1.5 billion to sit around the $3 billion mark, a drop of a massive 33 per cent.
While the Binance co-founder He Yi, said that the new method was the same as the previous burn, critics across Chinese social media begged to differ, leading to heated wars of words across WeChat, and elsewhere.
The major criticism that Yi and other founders faced was that burning the tokens in this new way could actually devalue the asset, a prediction that ominously seems to be unfolding before everyone’s eyes.
But other critics said that allowing the Binance leadership team to burn the tokens that were allocated to them when the asset was first created, gave them a quick and easy way to cash out, take profits, and remove liquidity from the BNB market.
Either way, investors have reacted badly to the news. It’s anyone’s guess on where the price goes from here.