Will Binance (BNB) Collapse?

Hysteria about a Binance (BNB) collapse is spreading because of some recent news stories.

First, the Mazars accounting firm stopped issuing Proof of Reserves Reports for Binance and BinanceUSD (BUSD) on 16 December 2022, Yahoo! News reports. Proof of Reserves reports show what assets a financial institution has.

For example, a Proof of Reserves theoretically shows how many US dollars Binance has in its accounts. This is important because it shows how many BinanceUSD (BUSD) payments Binance can make. To elaborate, stablecoins like BUSD contain smart contracts that make payment from dollars in a bank account. If the dollars are not in accounts, BUSD is worthless.

How Much Money does Binance (BNB) Have?

Frighteningly, Mazars stopped reporting on Binance and other cryptocurrency companies because it cannot verify their reserves.

 “Proof of Reserves Reports are performed in accordance with Reporting Standards relevant to an Agreed Upon Procedures report,” a Mazars press release admits. “They do not constitute either an assurance or an audit opinion on subject matter. Instead, they report limited findings based on the agreed procedures performed on the subject matter at a historical point in time.”

Hence, Mazars admits some of the proof of reserves reports are worthless. Therefore, Mazars’ accountants cannot tell how much money Binance and its competitors have. That is frightening.

Will USD Coin (USDC) Collapse?

Secondly, Binance paused withdrawals of the USD Coin (USDC) stablecoin on 14 December 2022.

I suspect Binance executives were afraid of a run on USD Coin. In a run, people pull money out of a stablecoin faster than Binance can replenish it. Such a run led to the collapse of the TerraUSD stablecoin in May 2022.

Notably, Binance’s action came during a massive wave of withdrawals after the FTX Exchange’s collapse, Yahoo! News observes. I suspect Binance executives feared that fast withdrawals of USD Coin could take all their reserves. Hence, they paused USD Coin trading.

I think Binance’s management acted fast and responsibility. To explain, Binance executives were trying to prevent a run that could bring down USD Coin and their exchange.

Stablecoins are Unstable

I blame the near run on USD Coin on two popular myths about stablecoins. The first myth is stablecoins are stable. This myth is bunk because the TerraUSD debacle proves stablecoins are often unstable.

The second myth is that stablecoins contain fiat currency. This is false. In reality, stablecoins make fiat currency payments from a bank account or a blockchain payments system. TerraUSD’s collapse proves stablecoins do not contain fiat currency.

Moreover, I think Binance’s USD Coin halt proves Binance executives suspect that stablecoin could be incapable of paying out. Hence, stablecoins are unstable and need to be treated as volatile assets.

How Much Money does Binance Have?

Nansen estimates Binance had $51.406 billion in total assets on 20 December 2022.

Binance’s largest holding was BUSD (around 28.18% of the assets), Next was Tether (USDT) 22.43% of the assets. The third asset was Bitcoin (BTC) which made up 12.76% of Binance’s assets on 19 December 2022.

Interestingly, BNB, Binance’s native token, comprised just 10.69% of its assets on 20 December 2022. Ethereum (ETH) accounted for 10.11% of Binance’s assets on 20 December 2022. All other assets comprised 15.84% of Binance’s assets on 20 December 2022, Nansen estimates.

What Assets does Binance Have?

Hence, most of Binance’s holdings are in what I consider strong cryptocurrencies. For example, I calculate 63.67% of Binance’s assets were in the three largest cryptocurrencies (Bitcoin, Tether, and Ethereum) on 20 December 2022. Moreover, 20.8% of Binance’s assets were in the fifth and sixth largest cryptocurrencies BNB and BUSD on 20 December 2022.

However, 50.61% of Binance’s holdings were in US dollar stablecoins (Binance USD and Tether) on 20 December 2022. Hence, almost half of Binance’s assets are in potentially volatile stablecoins.

The advantage to that they can covert almost half of Binance’s holdings to the world’s reserve currency: the US Dollar. To elaborate, the reserve currency is that largest and most widely accepted fiat currency. In particular, the reserve currency is the fiat currency that financial institutions and corporations use for international transactions.  

What Value Does Binance (BNB) offer?

CoinMarketCap named Binance (BNB) the fifth largest stablecoin with a $251.16 Coin Price on 20 December 2022.

CoinMarketCap estimates Binance had a $40.177 billion Market Capitalization, a $50.232 billion Fully Diluted Market Cap, and a $703.674 million 24-Hour Market Volume on 20 December 2022. Binance also had a $802.131 million Centralized Exchange (CEX) Volume and a $973,477  Decentralized Exchange (DEX) Volume on 20 December 2022.

They base those numbers on a circulating supply of 159.967 million BNB, a Maximum Supply of 200 million BNB, and a Total Supply of 159.980 million BNB.

However, Binance has lost over half its value in the past year. For example, Mr. Market paid $579.73 for BNB on 19 December 2021. On that date, Binance had a 24-Hour Market Volume of $1.47 billion on 19 December 2022. The 24-Hour Market Volume fell to $703.674 million on 20 December 2022. Hence, there is less interest in Binance.

What Value Does BinanceUSD (BUSD) offer?

Mr. Market gives BinanceUSD (BUSD) some value. For example, it was CoinMarketCap’s sixth-ranked cryptocurrency with a Coin Price of $1 on 20 December 2022. Hence, Mr. Market thinks BUSD is worth one dollar, which shows it is has some value.

In contrast, CoinMarketCap gave BinanceUSD an $18.077 billion Market Capitalization, an $18.343 billion Fully Diluted Market Cap, and a $5.817 billion 24-Hour Market Volume on 20 December 2022.

BinanceUSD also had a $5.77 billion Centralized Exchange (CEX) Volume and a $52.262 million Decentralized Exchange (DEX) Volume. They base those numbers on a Circulating Supply of 18.340 billion BUSD and a Total Supply of 18.073 billion BUSD.

How Safe is Binance (BNB)?

I think Binance (BNB) is a safe cryptocurrency if Nansen’s estimate about Binance holding of 50.61% of its assets (worth $26.02 billion) in US Dollar stablecoins (USDT and BUSD) is true.

However, Binance could be unstable if Nansen’s estimate is not true. Plus, Binance could collapse if Tether and BUSD cannot pay out in dollars. Yet, if the dollars are there, Binance has $26.96 billion in cash. Thus, Binance could be a cash-rich company.

Notably, Nansen’s estimates show Binance is not investing in questionable DeFi and lesser stablecoins such as Bancor (BNT). Instead, Binance heavily invests in proven assets, such as Bitcoin (BTC), BNB, BUSD, and Tether (USDT).

Hence, I consider Binance a conservative company that invests in known assets. Thus, you can call Binance a company that practices a strategy resembling value investing.

Consequently, is not totally safe, there is no totally safe investment. Instead, Binance is safer than other crypto investments.

Will Crypto Collapse?

No, I do not think crypto will collapse. Instead, bad crypto investments such as FTX (FTT) will collapse. I think this process of creative destruction will make crypto stronger.

Good crypto investments such as Binance (BNB) could survive and thrive. Indeed, Binance could buy up weaker crypto assets with value potential during the Crypto Winter. Just as Berkshire Hathaway (NYSE: BRK.B) buys other companies during times of collapse.

Instead of a crypto collapse. We are in a crypto panic driven by media hysteria. The media fear mongers are confusing all crypto with FTX (FTT) which is horrible.

Crypto Hysteria

Smart investors will buy the better crypto and dump the bad during the collapse. Hence, they will profit when the crypto bears return to the market as the media hypes it again. History shows that the media hypes asset collapses and asset bubbles because both phenomena drive hits to websites.

In particular, many “journalists” who do not understand crypto only cover it when there is bad news to sell ads. Hence, crypto always looks bad in the media.

Smart investors will examine the numbers and ignore the media hype. I predict crypto will recover and I think Binance could lead the recovery. Thus, Binance is a crypto for investors to examine. However, you should be careful with Binance (BNB) because there is uncertainty about its reserves.