The recent demise of the FTX (FTT-USD) exchange has sent shockwaves across the crypto markets. Everything began to unravel last week when the native FTX token, FTT, began to plummet:
This began partly when Binance CEO Zhao said it would be liquidating its FTT position. This was then followed by a leak of Alameda’s balance sheet, which revealed that the trading firm, also run by Sam Bankman-Fried, CEO of FTX, was backed mostly by FTT.
As of writing this, FTX has officially filed for chapter 11, leaving possibly over 1 million creditors to be made whole.
How did this happen? The FTX implosion has reignited the narrative that crypto is but a Ponzi scheme, but this is a gross misrepresentation. The FTX exchange eventually failed due to a lack of liquidity, which was sparked by the fall in the value of the FTT token, which represented a large portion of the exchange’s reserves. There also appear to have been some management issues, and authorities are investigating whether criminal misconduct occurred.
But in the grand scheme of things, there is life after FTX, and while some have been dragged down with FTX, other crypto players have gained from the situation. Some of the big winners of this debacle have been decentralized exchanges, like Uniswap (UNI-USD) and private storage solutions like Trust Wallet, which saw its token rise over 47%.
However, all eyes are now on centralized crypto exchanges, and none is larger than Binance. Binance also shares a layer of similarity with FTX in that it promotes the use of its native token, Binance Coin (BNB-USD) and even its own stablecoin, Binance USD (BUSD-USD).
Is Binance exchange safe, and if so, is BNB a worthwhile investment?
Is Binance Safe?
The short answer is yes, and the company has gone to great lengths to prove it since the resilience of the whole crypto industry was put into question last week.
Last Thursday, Binance published the address of its cold wallets to prove that it does indeed have the necessary reserves to support its $12 billion daily trading volume.
These wallets have a total of $65 billion in assets with the following composition:
$21.3 billion in BUSD
$6 billion in BNB
$13.4 billion in US Tether (USDT-USD)
$8 billion in Bitcoin (BTC-USD)
$6 billion in Ethereum (ETH-USD)
With this information alone, we can already see a stark difference between FTX and Binance. Alameda held a very large part of its net equity in FTT. This is not the case with Binance. BNB represents under 10% of the reserves, while over half of the reserves are denominated in USD stablecoins, with Bitcoin being the next largest holding.
On top of that, Binance does not engage in large-scale trading or loaning.
“We don’t have loans, we don’t have debt,” he said. “I believe, in the industry, we don’t owe anybody any money”
Source: Changpeng Zhao, Twitter
Having said that, Binance has just launched an Industry Recovery fund which might be used to prop up distressed companies/assets.
All in all, the only way that Binance could suffer a liquidity crunch like FTX is if the value of its stablecoins was put into question.
BUSD is a stablecoin launched in collaboration with Paxos, which is regulated by the New York state’s Department of Financial Services. Meanwhile, USDT is the largest stablecoin by market cap and has been under intense scrutiny in the past few months, leading it to increase its US Treasury reserves back in October.
There’s no better place to hold your crypto than your own private wallets, but short of that, I think Binance is, in my opinion, the most secure and most competitive exchange out there.
BNB is a strong Buy
Binance’s native token has been one of the best-performing in recent months, and I believe it is a worthwhile investment.
BNB can be used to pay for fees in the Binance exchange at a more competitive rate, but it also has functionality beyond that.
The Binance Smart Chain is EVM compatible, which means that it has smart contract capabilities. Binance aims to provide an open, permissionless and multi-chain environment for innovators.
Another strong point of BNB is its burn rate. The Binance exchange does a quarterly BNB burn using its profits to support its price of BNB. The company will continue to burn BNB until there are $100 million tokens in circulation.
On top of that, BNB also has an automated burning mechanism where a percentage of each transaction fee is burned.
The big downside to BNB is centralization, with the chain using a Proof-of-Authority consensus mechanism and only 40 validators.
Now, let’s look at the price analysis for BNB.
Since the inception of the coin, we have formed at least 3 waves up, with the peak at $700 being the top of wave 3. Since then, we have come down in an ABC structure, which may have bottomed as we approached the 21.4% retracement.
This is not a large retracement, but it is sufficient for a wave 4, and given the impulsive action we have seen off the low in June, I think we could already be starting a fifth wave up. The target for this wave is around $1000, which is the next key fib extension based on the arithmetic chart (the chart shown above is logarithmic).
However, I believe that we could see BNB retest recent lows in the next few months. This short-term analysis has been explained more in-depth to my subscribers.
Although I believe Binance is a well-managed exchange with good intentions, the company has been accused of aiding money launderers. Also, Congress could possibly launch an investigation over Binance’s role in the FTX collapse. After all, the announcement that the company would be selling its FTT holdings sparked the sell-off in the token.
The crypto space is still fairly new, and there are still undefined lines of what is legal and what isn’t and who can do what. To this extent, Binance also has to carry the burden of being linked to China. This is where the company was first started, though it is now headquartered in Hong Kong.
In the future, Binance could face increased regularity scrutiny and even face a shutdown of its operations. This has already happened in the UK, where Binance has been banned.
Understandably, the FTX collapse has cast a shadow of doubt over centralized exchanges, but Binance is not like FTX. While I would still advise people to keep their coins in personal wallets, I don’t believe Binance is at risk of bankruptcy, and, in fact, I believe that BNB could be one of the best-performing cryptos in the coming bull market.