What the Binance Theft Means for BNB
Most of the time, when a theft occurs at a major cryptocurrency exchange, it is hard to make a trade based on it. But it was just announced that Binance suffered a $40 million theft on May 7th, and Binance’s proprietary coin, BNB looks like it could make a good trade.
Binance CEO Chengpeng Zhao (CZ) was able to assuage many fears during the Twitter AMA he did early in the morning on May 8th, but users will rightfully be a little spooked. The $40 million in missing funds was taken from Binance’s hot wallets, which represents 2% of the total funds that Binance holds. Luckily, Binance does have an emergency fund that can more than cover these losses. However, they will now shut down deposits and withdrawals for the next week as they do a security assessment to figure out how hackers were able to gain access to the 2FA and API information. Trading will continue, but all users are requested to change their information.
Another piece of the puzzle is that it was revealed by CZ that Binance did put thought into trying to get the miners to do a “blockchain re-org”. This would have reversed the trade, but just the idea of this has drawn tons of criticism from the community. The fact that Binance even considered a Bitcoin re-org says they are becoming too centralized. There is something comically self-important about the idea of compromising the entire Bitcoin ethos just to prevent a $40 million theft. Bitcoin’s integrity would have been so greatly decreased if this happened, that the loss in market capitalization would be many multiples of that $40 million.
BNB Coin Implications
So the question is: how will this affect the price of BNB coin?
The coin is basically a measurement of the demand for trades on Binance, since users can use it to cover trading fees and get a sizeable (50% and more) discount on trading fees. The weird thing is that the price only dropped from 0.0036 to 0.0034 Bitcoin. This is hardly a crash, and we would normally expect the crypto market to almost overreact to any news, due to the lower liquidity and more concentrated markets.
Part of this muted crash may be because Binance has suspended withdrawals and deposits over the next week, but BNB coin could still be sold if users wanted to. I have a few theories here. First, it is possible that BNB coin is mostly held by users rather than traders. People who already are strongly invested in the strength of the platform and see Binance handling things well might think it won’t hurt the company long-term.
Another aspect could be that Binance still appears to be one of the more stable exchanges. It is the largest exchange my daily volume, after all. Even in this crisis, CZ was able to announce the planned release of margin trading.
So if this hack says anything about Binance and BNB, it is that they have very loyal users and are still dominant players in this space. Even with a hack, they have stayed stable. As a result, BNB makes great sense as a long-term buy. If it does drop in the short-term, this should be viewed as an accumulation period.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock. Chart via CoinMarketCap.com.