21 July 2023

Hello there,

Post last week’s brief excitement, we have gone back to consolidation mode with Bitcoin hovering around $30,000 and the altcoins waiting for the next signal to rally. While many top altcoins have performed well recently, the curious case of BNB is our focus today.

Be it regulatory troubles, workforce optimisation, and token underperformance, we cover them all in our lead piece today.

Before we head further, a reminder that the deadline to file your ITR is just 10 days away.

Top-3 stories of the week:

1

New U.S. Senate Bill Wants to Regulate DeFi Like a Bank

A new bipartisan bill in the US Senate, the Crypto-Asset National Security Enhancement Act of 2023, is seeking to impose bank-like money laundering controls on DeFi protocols. The bill focuses on entities controlling DeFi protocols and those investing more than $25m into developing them. The regulations mandate client vetting, enforcing AML programs, reporting suspicious activity, and blocking sanctioned individuals' access to protocols.

2

FutureVerse Raises $54M to Marry AI and the Metaverse

Metaverse and AI company FutureVerse recently raised $54 million in a funding round led by 10T Holdings, with Ripple in on the round as well. FutureVerse plans to continue developing its AI content generation tools that will set the base layer for the company’s metaverse with the new funding. FutureVerse, which has acquired 11 companies since its inception, recently launched the AI-powered game AI League in collaboration with FIFA and an AI-powered boxing game in partnership with Muhammad Ali Enterprises.

3

US SEC accepts six spot bitcoin ETF proposals for review.

The U.S. Securities and Exchange Commission (SEC) has accepted applications to create spot bitcoin exchange-traded funds from six firms including BlackRock (BLK.N) for review, the first step in the agency's process for deciding whether or not to approve the latest round of proposals.

The newsletter is put together by Giottus Crypto Platform and The News Minute’s Brand Studio. You can read all the previous issues of Cryptogram here.

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WEEKLY MACROS

• Total crypto market cap - $1.21 trillion - DOWN 4.1%

• Bitcoin price - $29,906 - DOWN 5.1%

• The dollar index (DXY) - 100.79 - UP 1.1%

• Bitcoin Dominance - 49.76% - DOWN 0.7%

• Crypto Fear and Greed Index - 50 - the market is in neutral state

THE HOT TAKE

The future of BNB amidst Binance’s troubles

It all started with the SEC suing Binance and Binance.US in early June for a variety of reasons including operating an unregistered exchange. While Binance vowed to fight this legally, it has had a strong effect on its operations and the outlook for its native token BNB. We analyse key trends that you, as an investor, should be aware of.

1. Steep decline in market share

The SEC's lawsuits and investigations against Binance have led to a decline in user confidence and substantial decrease in trading volume. According to data analytics firm Kaiko, Binance’s global market share fell by nearly 8% since last month, from 60% to 52%. Its US market share slumped to 0.9% as of June 26 from more than 22% recorded in April.

While Binance continues to be the most-preferred trading platform ex-US, its share can go down further in upcoming years if other markets also crackdown in terms of regulation. Case in point – Binance can be used by Indian investors currently though it does not deduct 1% TDS on a crypto sale that is mandated by the Indian government.

2. Binance is slashing its workforce

Amid ongoing investigations by US and global regulatory intermediations, approximately 1,000 employees have been laid off by Binance including in India. Moreover, it is suggested that the company may lose over one-third of its staff by the time they are done with the cuts. This comes on top of woes that Binance has been grappling with — resignations by high-profile executives in response to potential DoJ charges and SEC lawsuits on alleged illegal operations and misuse of customer funds.

At the start of the year, Binance suggested that it will increase its workforce. Clearly, it hasn’t been going according to plan.

3. BNB has underperformed in 2023

BNB, at $244, is currently trading well below its key moving averages around $280 after falling from above $300 a token in June. This is concerning given that while other altcoins have rallied well on some weeks, BNB continues to be range bound. It seems to have found a floor currently (the low from FTX crash) which must hold for the token to stay above $200.

However, BNB token is being heavily shorted due to negative funding rates implying strong selling pressure. Data by Coinglass show that open interest and volume-weighted funding rates in perpetual futures have slipped to -0.18%, the lowest since late April – which is a worry.

 4. The product itself is evolving well

Earlier this week, Binance completed its integration of the Bitcoin Lightning Network. As a result, users can expect a more seamless and efficient Bitcoin trading experience. Transactions will be faster, as well as cheaper. This is pertinent given the emergence of Bitcoin Ordinals that drove transactions fees high earlier this year.

The exchange also completed its quarterly burn process worth over half a billion dollars. CZ, the CEO of Binance, announced the same on Twitter while discarding some speculations that are currently spreading online.

BNB burn is a quarterly event in which Binance destroys some BNB tokens to reduce its circulating supply, which can theoretically increase the token’s price. It also demonstrates commitment from the exchange that, operationally, all is well.

Key takeaway

BNB has been a top performer in the last cycle given the economics around it being the native token of the largest exchange with which users can offset fees and other use cases. However, it is being stress tested this year and its future may be linked to how Binance navigates its regulatory scrutiny. Binance continues to be the most-favoured exchange globally and has a fair chance to rebound from these troubles. This may play out over few years and should not be expected to resolve in the short-term.

In the interim, until BNB bounces above $300 and holds the level as support, investors should be prudent to not gain a significant exposure to the asset.

Disclaimer: Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.

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If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.