Problems for the Binance Coin (BNB) crypto

Binance Coin (BNB) is the crypto of Binance

It is also the native cryptocurrency of BNB Chain. The latter is a theoretically decentralized blockchain, although Binance’s role in its operation is relevant.

BNB is suffering in the crypto markets these days because of the problems with BUSD (Binance USD).

Crypto: Binance Coin (BNB) and BUSD

In theory, there is no close relationship between BNB and BUSD, except for the fact that the fees one has to pay to send BUSD tokens via BSC have to be paid in BNB.

The greater relationship lies in the use of the name Binance, which is the brand name of the world’s leading crypto exchange.

Indeed, behind Binance USD, i.e., the BUSD stablecoin pegged to the US dollar, is not the Binance exchange, but another issuer (Paxos) that uses the exchange’s brand name because it has been granted the right to use it for this specific purpose.

Given the problems BUSD is having, Paxos has decided to discontinue its commercial relationship with Binance, and stop minting new BUSD tokens.

Hence in theory BNB is a different thing altogether, with different issuer (BSC), different value, different market, and different expectations. Despite this, Binance USD’s problems are not spilling over into BUSD’s market value, but seem to be weighing on BNB.

BNB’s decline

Yesterday, the price of BNB fell within about two hours from $315 to $289, and then fell again over the next nine hours to $284.

Thereafter, it recovered slightly, ending its descent and partially rising again to $292.

Whereas the price of BUSD was essentially always around $1, since it is a fully collateralized stablecoin and redeemable at any time by Paxos at the fixed price of $1.

As long as Paxos continues to have no problem redeeming BUSD at the fixed price of $1, its market value will inevitably continue to fluctuate around this figure.

It may fall significantly below $1 only for short periods, and on isolated exchanges where arbitrage does not rush to meet any oversupply of selling. As soon as that excess ends, or as soon as arbitrage manages to meet all of the selling bid, its value returns to around $1.

It is only in the remote event that Paxos is no longer able to return $1 to anyone who in turn returns their BUSD tokens that its real market value could deviate from parity with the dollar in a consistent and definitive way.

For example, taking the BUSD/USD trading pair on Binance as a reference, it turns out that yesterday for a very brief moment the price of BUSD fell to $0.995, a deviation of only -0.5% from the reference value. Within an hour it had already risen to $0.999.

Therefore, if the price of BUSD cannot realistically fluctuate much at this time, what fluctuates is the value of BNB.

Why is BUSD driving BNB down

It is possible that the main reason BUSD’s problems have increased selling pressure on BNB is the shared Binance brand.

After all, the Binance exchange actually seems to have nothing to do with the problems of Paxos, which is the issuer of BUSD. The thing is that the price of BUSD cannot go down, except for a very short time, even in case the selling pressure increases a lot, hence the fears spill over into the price of BNB.

It is worth noting that yesterday BUSD’s market capitalization fell from $16.1 billion to $15.7 billion, despite the fact that the price has not significantly changed, because the increased selling pressure on stablecoins does not have the effect of driving down their price, but rather the number of tokens in circulation.

However, there is also another much more important reason that caused BNB’s decline.

Indeed, many have interpreted the moves of the US authorities against BUSD as actually a direct attack on Binance itself.

While from a strictly technical point of view it seems for all intents and purposes to be an attack against Paxos, it is suspected that the real ultimate target may be the exchange.

At this point, it is obvious that there is increased selling pressure on BNB, despite the fact that from a strictly technical point of view this would actually be BSC’s native cryptocurrency. Behind both BSC and BNB is Binance itself, so an increase in fears about Binance inevitably leads to increased selling pressure on BNB.

The 2022 of the Binance Coin (BNB) crypto

It is worth noting that despite the recent decline, and the 2022 crash, BNB’s current price is “only” 57% below its all-time high of $686 touched in May 2021.

For instance, Bitcoin is at -68%, and ETH at -69%.

And yet Bitcoin has lost only 0.3% since yesterday, while BNB has lost 6.7%.

The point is that in 2022, BNB has lost less in percentage terms than BTC and ETH, perhaps partly due to the fact that in 2021 it did not have two peak highs but only one.

BTC and ETH had a first peak between April and May 2021, and then a second one in November. In contrast, BNB stopped at the maximum peak in May, because the one in November was slightly lower.

But the big difference was made by the second part of 2022, that is, after the collapse in May and June due to the implosion of the Terra/Luna ecosystem and its consequences.

The facts

As a matter of fact, at the end of December 2022, the price of BNB was 25% higher than the annual lows in June, effectively making the bear market of 2022 a little less harsh for BNB holders.

Therefore, despite yesterday’s sharp decline, the price of BNB is actually still doing quite well compared to other major cryptocurrencies.

This is also because Binance remains the undisputed leading exchange in this market, and its strength has not yet been affected in the slightest by the attacks of the US authorities.

It is also worth noting that the Binance.com exchange does not serve US customers, because for US customers there is Binance.us, a de facto exchange detached from the international one, although based on the same exchange platform.

Binance and BNB continue to be very strong, despite all the problems they are going through, perhaps precisely because they have shown so far that they are able to deal with and solve them all.

It should be kept in mind that since its inception in 2017, the exchange has already had to face and solve numerous problems, including legal ones, and so far it has always shown itself to be able to come out on top.

In other words, using a term that has been very fashionable lately, it has demonstrated concretely that it is very resilient, and this can only reflect positively on BNB’s price in the medium to long term.