The size of Binance’s lead in the crypto exchange game is substantial.
A simple look at the below chart, which plots the volume over the last few months against Coinbase and FTX, hammers this home.
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While the above is spot volume, there are also derivatives to consider. While this rules out Coinbase, the comparison to FTX is similar – Binance well clear.
It goes to show quite how dominant Binance has become as the number one exchange of choice. Despite Coinbase being slated as ready to take the throne as it went public in 2021, Binance has remained on top.
I remember musing at the time how much the public IPO would do for the image of Coinbase, curious as to how filing with the SEC would improve its reputation for security and safety, especially among novice investors.
I thought this could provide a catalyst for Coinbase to gain more market share, as adoption increased among institutions and trad-fi investors increasingly flocked to the world of virtual currency. I believe I underestimated Binance’s innovation, however, as well as the advantages implicit in not going public.
Just over a year after going public, Coinbase laid off 18% of its workforce – a hefty 1,100 people. Meanwhile, Binance continued to not only employ their workforce, but advertise for open spots.
In fact, since Coinbase went public in April 2021, Binance’s token (BNB) has outperformed it significantly, with COIN 82% and BNB off 52%. Interestingly, it has also outperformed Bitcoin in the same time period.
The danger of expanding too quickly
It appears Coinbase expanded too quickly.
While we tried our best to get this just right, in this case it is now clear to me that we over-hired
Coinbase CEO Brian Armstrong
The implicit benefit of being a private company, meanwhile, is that Binance doesn’t face the constant scrutiny of financial markets, nor is prone to sacrificing long-term growth in pursuit of short-term wins which ultimately are not the right course of action.
The infamous Super Bowl ads are another example of misjudgement. The Super Bowl got nicknamed the Crypto Bowl, as a host of crypto ads – Coinbase, FTX, and more – graced TV screens around the globe, costing millions of dollars.
Binance, again, took a hard pass. And again, it looks like a prescient move today.
FTX act as lender of last resort
What about FTX? Thier recent move to act as a lender of last resort has been notable, drawing praise from around the industry. Personally, I think this is less a good-samaritan move, and more a case of opportunistic business. Nonetheless, FTX has been operated extremely well too, moving from strength to strength over the last couple of years.
To me, FTX and Binance have separated themselves from the crowd of exchanges, and there is now a substantial gap. This is especially apparent now that the bear market has turned, with the ill-prepared getting exposed, akin to Coinbase as its layoffs.
FTX gained a lot of press for extending lifelines to companies in the form of bailouts – involved either through FTX or Sam Bankman-Fried’s Alameda Group, with a bunch of companies. Among the most notable was a bid for embattled lender BlockFi.
While BlockFi management originally decried Bankman-Fried for being opportunistic rather than altruistic – there was, and still is, a narrative that SBF pursued the companies in order to save them rather than out of self-interest – I am not sure this matters.
The bottom line is that FTX is even in a position to try and capitalise on the contagion-driven mess so many companies found themselves in. If that is not a sign of strong planning and a formidable balance sheet, I don’t know what is.
Finally, to view how well both FTX and Binance have done, a quick glance at their native tokens is all that’s needed. I plotted FTX’s token, FTT, and Binance’s token, BNB, against Bitcoin – the ultimate crypto benchmark.
Looking at returns since FTT was launched in July 2019 (BNB was launched in November 2017), both exchanges’ tokens have outperformed Bitcoin significantly. BNB is up 900% and FTT is up 1268% since July 2019. In the same timeframe, BTC is only up 100%.
While not a perfect barometer, I sometimes think of the tokens as equity in the company, with the massive caveat that they are highly correlated to Bitcoin and the wider market (as the businesses themselves are, to be fair).
In conclusion, I think despite the bear turns, Binance and FTX both have to be pleased with their management and planning. Crypto is a highly volatile market and the good times couldn’t last forever. But with the gameplan in place, both these giants seem primed to weather the storm, well-placed for when the money comes rolling back into the sector.
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