An increasing number of crypto analysts explore the possibilities of Binance Coin (BNB) beating Ethereum (ETH) to the second position for cryptocurrencies. Why is this not so unlikely to happen?
Key takeaways about Binance Coin
- Binance Coin is now the 4th crypto currency by market capitalization, according to CoinMarketCap.
- The Binance crypto exchange is the first crypto exchange in the world.
- Binance Coins and the Binance blockchain offer a cheaper and more efficient way of making transactions than Ethereum.
- Year to date, Binance coin is up 566% to $240 and has potential for more price growth.
- With Coinbase going public at a $90 valuation, it could lead to a sizeable repricing of BNB given Binance's role as the market's largest crypto exchange, and the fact that BNB's performance is closely tied with Binance's success.
What is the Binance Coin?
The Binance Coin is a cryptocurrency that is used to trade and pay fees on the Binance cryptocurrency exchange. It was created in July 2017, and initially worked on the Ethereum blockchain before becoming the native currency of the Binance Chain.
Binance is the world’s largest cryptocurrency exchange, with a daily spot trading volume of over $23 billion and a derivative trading volume nearing the $50 billion mark at the time of writing. To give you an idea of its importance, the second cryptocurrency spot exchange, Coinbase, has only about a tenth of this volume.
Top 5 cryptocurrency exchange by daily transaction volume
An important incentive for Binance platform users is that they get a discount on their transaction fees when using Binance Coins. The coin can also easily be exchanged for other major cryptos such as Ethereum, Bitcoin or Litecoin.
What are the uses of the Binance Coin?
The Binance Coin, like other cryptocurrencies, has many uses to it, such as:
- Trading: BNB can be traded against most major cryptocurrencies.
- Reduced transactions fees on the Binance Exchange: there is an incentive to use it as it reduces the overall costs.
- Credit card payments: can be used for crypto credit cards.
- Payment processing: merchants can offer BNB as a payment mean for customers.
- Travel: some airlines and hotels accept BNB as a payment method.
- Entertainment: one can buy digital gifts, art, and lottery tickets as well as other digital assets.
- Investing: some platforms allow investors to use Binance Coin to buy stocks, ETFs and other assets.
- Loans: BNB can be used as collateral.
- Transfers: some apps allow users to split bills and make transfers using BNB.
Binance Coin price surge and future predictions
The BNB/USD has surged, from $36.96 at the beginning of the year to a high of $348.69 on February 19th, pushed up by platform popularity and some shortcoming of Ethereum. At the time of writing, BNB sits at the $240 level, but many analysts are bullish for a target price of $500 or above.
“BNB is at $250, 4.6X smaller than ETH in the cap. Growth potential is there,” said an anonymous crypto analyst. “Mark my words: $500 minimum very achievable with all the fundamentals and market conditions as is.”
BNB/USD price, a 560% surge this year
As reported by CoinMarketCap, Binance Coin is now the 4th largest cryptocurrency by market capitalization, less than a billion under Cardano, but $5 billion ahead of the 5th spot held by Polkadtot.
Top cryptocurrencies by market capitalization
It is a fact that the growth of the Binance Crypto Exchange naturally boosts the value and adoption of the Binance Coin. Additionally, the company burns 20% of its BNB revenue every quarter to ensure scarcity facing rising demand.
Finally, with Coinbase going public at a $90 valuation, it could lead to a sizeable repricing of BNB. Indeed, Binance has a trading volume that is 10 times that of Coinbase. Given Binance's role as the market's largest crypto exchange and the fact that BNB's performance is closely tied with Binance's success, it is possible that BNB's price goes up the roof, following the Coinbase IPO.
One potential risk is that Bitcoin implodes again. If crypto trading slumps again, there is a risk that Binance Coin becomes inherently worthless, although a downfall of Bitcoin could also be the results of money flowing into other altcoins, such as the Binance Coin. Here is a summary of the pros and cons of Binance – and thus, of the Binance Coin, from BitCompare.
On Binance Coin becoming the better alternative to Ethereum
According to Changpeng Zhao, founder of Binance, it is likely that Binance Coin will do to Ethereum what Bitcoin is doing to gold: eating a portion of its market cap by becoming a better alternative.
He notes that although Ethereum is a wonderful service and cryptocurrency, it remains slow and expensive. As a contract, the Binance Smart Chain can handle more transactions at a lower cost, given its centralized blockchain and smart contract functionalities.
“BSC is not an ETH killer. It is built with learnings from ETH and tries to help solve one key issue, high fees. It wasn’t designed that way, or at least, it wasn’t presented to me as such.”
And in another tweet: “ETH is a network for the rich guys now, but soon those guys will be poor.”
Indeed, transaction costs have catapulted year-to-date, from $5 on average last year to $15 today.
Additionally, having its own chain on which to issue tokens – one of which is Binance Coin – gives it much more possibilities and its own crypto exchange which accepts almost all crypto is a great step towards being a trusted and transparent financial ecosystem. A specific advantage of the Binance chain is that is has no custody funds, meaning that traders have control over their keys and assets and can trade wallet-to-wallet. This means that there are no risks of the exchange to be hacked.
We still need to mention that Ethereum is working on its new version “Ethereum 2.0”, which once complete, should be able to handle thousands of transactions per second. Who will win?
Why $BNB may be > $ETH:— Crypto Godfather (@CryptoGodfatha) March 2, 2021
1. Currency of the top exchange.
2. "Centralized" marketing is still stronger than decentralized/organic.
3. Less fees/faster transactions.
4. Faster growth.
5. More upside.
Now $BNB is at $250, 4.6X smaller than $ETH in cap. Growth potential is there. https://t.co/jdKRVPTRlL
The Crypto Godfather makes the case that BNB might well challenge ETH.
How to trade Binance Coin?
Aside from directly buying Binance Coin, one interesting way to get exposure to the crypto market is to invest in ETPs, which offer the market exposure without having to worry about custody or owning the underlying asset:
Time to choose your side!