The world of Cryptocurrencies and the technology behind itis still intriguing investors and traders around the world, as blockchain technology is still not fully understood by the masses. Among the different terminology that we come across, a token burn is a common occurrence. Crypto companies may decide to burn some of their own tokens from the circulating supply for various reasons. This is known as Coin Burning or token burning event. It has been previously conducted by several token developers, primarily as a tool to increase demand.
The Impacts of a Coin Burn:
Similar to the stock market where a company decides to buy back some its own shares, cryptocurrencies can essentially burn some of their own tokens to lower circulation in the market. As a result, it promotes exclusivity, thereby raising the value of the coin in question.
To further explain the impact on price, let’s take an example of a company “X”. Company X decides to perform a coin burn for 50% of its existing token supply. (Example: 1000) priced at $5 each. As a result of the coin burn, the existing supply is reduced to exactly half (500) which make it 50% more valuable, increasing the price per coin to $10. Hence a coin burn is an advantage of big stake token holders.
The Effect of the Binance Coin Burn:
Binance declared earlier in their whitepaper that they were about to conduct a $30 million BNB token burn event which was completed in due course. However, it did not seem to impact the price too much, as the BNB token was still trading at a -2% on 15th April, valued at a high of $13.84 USD. The token burn generally was for increasing demand for a coin, and although BNB experienced a slight increase in the days leading up to the event, the coin was still trading at a negative despite the burn.
Analysts have argued that a mix of different factors impacted investor sentiment towards the coin. One of the major news was the September decision when Binance moved out their servers and headquarters to Japan from China. The decision was taken after increased fears regarding the Chinese government’s negative stance on cryptocurrency trading and exchanges. The rise and fall of value are quite similar to what happened on January 15th, when a coin burn of 1,821,586 BNB was conducted. The value peaked monumental levels and reached $22.95 at one point before a disappointing slump to $11.14 within the span of a two day period.
Binance as an exchange has enjoyed dominance for most of its lifetime in the crypto space and is still ranked first in terms of trading volume. It is currently up to roughly $1.5 Billion in trades at the moment and the numbers look impressive for quite a recent exchange. Currently, the Binance Coin is trading at $12.32, at a negative of -0.65% at the time of writing (17-4-18).
At a time when the cryptocurrency market is experiencing a storm and sentiments are low, it is important for the Binance team to solidify their goals and work towards them. In fact, reports indicate that many exchanges have considered closing operations with Japan’s Kraken Exchange shutting down citing rising costs as the reason. Although trend lines this time around aren’t looking as encouraging this time around, Binance still dominates the crypto space as a community-driven exchange. This is further encouraged by the discounts offered on BNB token usage on the platform, as discussed in detail in their whitepaper. Overall, many tokens and exchanges may struggle for months to come, but Binance’s position is predicted to remain strong for a sustainable period of time.
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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Global Coin Report and/or its affiliates, employees, writers, and subcontractors are cryptocurrency investors and from time to time may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency and read our full disclaimer.
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