Binance Coin (BNB) is an interesting case that has drawing quite a bit of skepticism (and folding) from the overly optimistic crypto community. Fueled by a combination of technical indicators, tokenomics, and ecosystem developments, the bullish sentiment surrounding BNB has been growing stronger. This Op-Ed hopes to serve as a more data-driven look at what’s fueling this optimism, and at the same time, recognizing where risks may still exist.

Technical Analysis: Spotting the Cup and Handle

No one is arguing that technical analysis doesn’t provide useful context about where price may move next. One pattern that has particularly piqued the interest of many analysts is the so-called “cup and handle” formation. Although not specifically stated for BNB in these recent reports, the concepts are the same. A cup and handle is a bullish continuation pattern and it indicates that a breakout could be imminent. The “cup” creates a U-shaped price consolidation. Specifically, the “handle” is a short-term downward movement in advance of the long term breakout to the upside. If a triangle pattern does form on BNB’s price chart, it might indicate a big breakout in the bullish direction. Investors need to look at technical analysis as just one piece of the puzzle when assessing an asset.

The BNB market is highly volatile, currently 43% volatility is expected. This means that investors need to prepare themselves for significant price swings. At the moment, BNB has a bull signal for the 1-week rating and a bull signal for the 1-month rating. These ratings indicate a positive short-term and medium-term outlook, but must be taken in context with other signals and market dynamics.

Tokenomics: The Power of Burning

Tokenomics, the study of a cryptocurrency's supply and demand dynamics, plays a crucial role in BNB's potential price appreciation. One of the most discussed aspects of BNB’s tokenomics is its burn mechanism. The BNB Chain implements a unique auto-burn strategy. It calculates and burns BNB based on the coin’s price and usage on the BNB Smart Chain (BSC). This process repeats every quarter until BNB’s total supply is down to 100 million.

The supply of BNB burned each quarter is directly tied to the trading volume on the Binance exchange, which is booming. More trading volume means more BNB is burned, so the BNB’s circulating supply is often decreasing over time. To offer their customers better services, Binance has moved to an auto-burn mechanism. It operates the BNB Pioneer Burn Program, which reimburses users for lost coins in qualifying cases. These reimbursed coins go on to be included in the official burn tally. This action contributes to decreasing the circulating supply of BNB.

Since these burn mechanisms are complementary, they further contribute to the reduction of BNB’s circulating supply. Due to its limited maximum supply and low inflation, the supply will just keep decreasing over time. This scarcity creates upward pressure on price over time, as more and more people want in the door while supply is slowly withdrawing.

Ecosystem Growth: DEX Dominance and Stablecoin Adoption

The rapid expansion of the BNB Chain ecosystem has been a major bullish sentiment driver. In fact, Binance Wallet’s market share of DEX trading volume is unmatched, even in the DEX space. It is no wonder why Binance Wallet has rapidly become the industry leader by a long shot. It currently boasts a staggering 95% market share and $5.1 billion in daily trading volume.

Given that MetaMask is seeing around 900,000 DDUs per week, this rapid growth is impressive to say the least. MetaMask is now widely considered the flagship self-custodial wallet. For comparison, it only dealt with $9 million worth of swaps, whereas Binance Wallet’s daily volume shot up to roughly 555 times that. Big news — @binance Wallet set a new record in daily DEX volume today, surpassing $5.95 billion. Furthermore, data from DeFi Llama indicates that the BNB Smart Chain is now handling more volume than Solana and Ethereum combined.

The adoption of stablecoins within the BNB Chain ecosystem is fueling its growth. World Liberty Financial, a DeFi Project funded by Trump, joins forces with Re7 Labs. Together, they are working to increase the adoption of their stablecoin, USD1, on Binance’s BNB Chain. In May, Abu Dhabi investment firm MGX used USD1 to close a $2 billion deal with Binance, highlighting the increasing relevance of stablecoins in institutional digital finance. This partnership aims to advance a model for stablecoin adoption that meets the expectations of both crypto-native and institutional users.

Potential Risks

Though the bullish signals around BNB are quite persuasive, it’s important to recognize the risks as well. Cryptocurrency market is highly speculative, and BNB price is influenced by general market trends and unexpected events. Investors face risk of total loss and are strongly cautioned to carefully investigate and consider their investments in BNB.

Regulatory scrutiny poses a significant challenge. Earlier in 2023, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Binance. This unprecedented and rash action shook up markets and put investors on high alert. Recent global regulatory developments might still weigh on Binance and thus BNB’s price further.

BNB’s value is inextricably linked to the success of Binance. Any negative impact on Binance, such as security breaches, regulatory actions, or loss of market share, could negatively affect BNB's price.

Conclusion

Bullish sentiment for BNB is supported by strong technicals, favorable tokenomics, and ecosystem expansion. A potential cup and handle breakout might be forming for BNB. As supply continues to decrease with burn mechanisms and Binance Wallet continuing to dominate the DEX market, the future is incredibly bright for this cryptocurrency.

In doing so, investors need to be aware of the risks they are taking. These take the form of crypto market volatility, regulatory scrutiny, and reliance on Binance’s success. As always, do your own due diligence before investing in BNB or any other crypto asset. Of course, take your own risk tolerance into account at all times!