Binance is the leading cryptocurrency exchange in the world and their token, BNB, is the coin with the third largest cap in the world. Every single quarter they have a token burn, and the goal of their leader CZ is to burn more and more tokens.
During the burn for the fourth quarter of 2020, they burned 3,619,888 tokens, at that time worth 165,971,000 USD. During their newest burn which happened earlier today, they burned a total of 1,099,888 BNB tokens, worth more than 592,000,000 USD. In other words, their newest burn is worth more than half a billion Dollars with the present market value of the BNB token.
It is quite interesting if you compare the two last burns. In the start of January they burn three times as many tokens as they did for their Q1 burn in 2021, but the value of the Q1 burn in 2021 is still worth more than 3 times more than the Q4 2020 burn. That also says a lot about the moon-rocket the BNB has been on since the start of 2021.
Why are Binance burning tokens? Is it even necessary?
It might sound strange that someone will actually burn tokens worth such big amounts of money, but there are different principles lying in the background when someone decides to do a token burn.
Can you imagine entering a store looking for a bar of Snickers. As you walk inside, you see that there are Snickers bars piled up everywhere, and you are the only person in the store. What kind of feeling do you have? You don't have FOMO at all, because you are surrounded by Snickers bars, and you can get one whenever you want to.
Now imagine that you walk into a different store. You are really hungry for a Snickers, but as you enter the store, you see 3 Snickers bars and 10 people looking for Snickers bars as well. What is happening? The supply has been reduced, which eventuelly will lead to a price increase.
That is what will happen when Binance and other projects decide to burn tokens. It produces scarcity, which eventually will lead to price increase, especially when the demand for the token increases. Some companies burn tokens they own themselves, something that doesn't necessarily impact the price at once, while other companies buy tokens at market price in order to burn them. In the latter version, it often has an immediate price effect on the token as well.
What can you learn by looking at total supply and circulating supply?
You might dream of seeing your favorite token reach $10,000. But, is that realistic? Steem has a circulating supply currently at 369,000,000 tokens. That is approximately 17 times more tokens than the number of Bitcoin tokens. In other words, for Steem to reach the same marketcap as Bitcoin has today, the price would need to reach $3529 per token.
The circulating supply of Hive tokens is similar to that of Steem, meaning that for Hive to reach the current marketcap of Bitcoin, the price per Hive token would need to reach more than $3500 per token as well.
But, let us look at another example. Strongblock is a project led by David Moss (leader of BlockOne), and they currently have more than 20,000 Ethereum 1 nodes running. In November 2020, they burned 95% of their total supply, redudcing the number of tokens from 10,000,000 to somewhere around 500,000. Do you know what the price of one Strong token would be if it would reach the same marketcap as Bitcoin has today? The price per token would be approximately $1,200,000.
Binance Coin and circulating supply
Let us return to the Binance Coin before finishing. The current circulating supply of BNB tokens is 153,432,897. In other words, there are 7,5x more Binance tokens than the number of Bitcoin tokens. So, if Binance Coin should reach the total marketcap of Bitcoin today, the price would have to reach $8000 per token.
This is just interesting, and I wanted to include it for you to understand why the Binance token burn is of importance, and why looking at numbers such as circulating supply and total supply is important when you try to understand in which direction the price of a token might move.
Thank you for reading!