Binance: Fight The Urge To Buy The Dip

Summary Binance Chain's BNB token has lagged other smart contract chain native assets year to date. Binance the company is facing legal issues, including lawsuits from the CFTC, SEC, and investigations by the DOJ and the IRS. Network metrics for the Binance blockchain are mixed, with DAUs and transactions steady. But network fees have been declining. When I last covered Binance (BNB-USD) for Seeking Alpha in early April , it was fresh off a lawsuit against company Binance and Binance CEO Changpeng "CZ" Zhao from the Commodity Futures Trading Commission. Since that article, BNB has traded down over 20% and now finds year to date performance to be significantly lagging the other top smart contract chains in the cryptocurrency market. BNB is one of the few coins among the top in the industry that is actually down year to date: Data by YCharts Ethereum (ETH-USD) is up over 50% year to date. Avalanche (AVAX-USD) is up about 20%. And despite the allegation from the Securities and Exchange Commission that it's an unregistered security, Cardano ( ADA-USD ) is up 25% year to date and well off the post-SEC news low. BNB hasn't been able to get off the mat to the same degree. As it has been roughly a quarter since my initial BNB coverage, in this article we'll go over the latest developments with Binance the company and look at some of the key network metrics pertaining to the Binance blockchain. Fundamental Developments Following the CFTC's March lawsuit against Binance, the organization had until July 27th to respond. We now know Binance is looking for a dismissal of the lawsuit entirely after filing intent to dismiss with an Illinois district court on July 24th. In the document , Binance is asking for permission to exceed the permitted page limit for a brief due to the number of arguments made and the complexity of the CFTC's complaint. In addition to the CFTC lawsuit earlier this year, Binance was also sued by the SEC in June for, among other things, alleged comingling of customer assets. Elsewhere, the company is also under investigation by both the Department of Justice and the Internal Revenue Service for alleged money laundering. Beyond the clear problems facing Binance on the legal front, the company has also laid off employees, exited markets, and seen key executives depart in recent weeks. According to the Wall Street Journal , Binance recently laid off roughly 1,000 employees across various departments. Over 1,000 people have been fired in recent weeks, according to a person familiar with the moves. The exercise, which is continuing, could result in Binance losing more than a third of its staff, the person said. It apparently isn't just involuntary departures that have led to a headcount reduction at Binance. The company has also seen several key executives resign in recent weeks. According to Fortune , those former executives include general counsel Hon Ng, chief strategy officer Patrick Hillmann, SVP for compliance Steven Christie, and former IRS agent Matthew Price who oversaw investigations and intelligence. Hillmann verified his departure on social media but indicated he was doing so on good terms. However, Fortune's article seems to place blame for the executive exodus on CZ: According to a person at Binance familiar with the situation, the executives chose to depart over Zhao’s response to an ongoing investigation by the Department of Justice. Several outlets have reported that the investigation, underway for more than a year, relates to Binance’s alleged attempts to bamboozle U.S. regulators as well as alleged money laundering and sanctions violations on the company’s platform. Given the amount of bad news surrounding Binance the company, it may not be surprising to see Binance the coin struggling against the native assets of notable smart contract peers in recent weeks. Network Metrics As far as the Binance blockchain is concerned, some of the key network metrics are actually holding up okay despite the problems facing Binance the company. Daily active users of the blockchain have held firm near 1.3 million over the last three months. After dipping well off highs during the November 2021 cycle top, daily transactions on Binance Smart Chain appear to have somewhat stabilized in the 3 to 4 million range. Binance Daily Transactions (BSCScan) However, despite this apparent stabilization in daily transactions, the fees earned by validating those transactions have declined in recent months from $20.5 million in March to just $13.3 million in June according to data from Token Terminal. Monthly Fees vs PF Ratio (Token Terminal) As July approaches a close, fees are still under $10 million for the month. What's important to mention is July 2023 fees are still well ahead of the $5.4 million in fees during July 2022. But even with the decline in the price of the BNB token, the reduction in network fees over the last several months has pushed the fully diluted price to fees ratio up to nearly 330x. This could be considered an indication that BNB is still overvalued even after the recent decline in the token's price. BNB TVL (DefiLlama) From a DeFi standpoint, Binance remains one of the largest smart contract chains as evidenced by its $3.3 billion in TVL. That said, the broad trend in TVL is still down even when adjusting for the declines in native coin price. Measured in BNB, TVL on Binance has dropped from a high of over 39 million coins two years ago to under 14 million today. And the trend in stables on-chain hasn't been positive either. There we observe a reduction from $12.9 billion last summer to $5.3 billion currently. Binance Exchange Data Shifting back to Binance the company for a moment, the exchange data shows asset balances are roughly in line with where they were when I last covered the BNB token in April. According to Nansen, Binance controls a little over $63 billion over several different blockchains: Binance Exchange Holdings (Nansen) In the last three months, Binance's token weighting to BNB has declined from 5.3% to 4.4%. We've also seen Bitcoin ( BTC-USD ) holdings increase from 23.6% of assets to over 27%. Another interesting move has been in the balance of stablecoins on the exchange: Binance Stablecoin Flow (Dune Analytics/xihablock) According to data from Dune Analytics, July is on pace to be the first month since November where stablecoin net flow hasn't been negative. Of course, the month isn't over yet and this could change between now and August 1st. But the larger point is there appears to be a slowing in stablecoin outflow in recent months. Risks As I mentioned in early April, there are a lot of questions around how exposed to BNB Binance truly is. I think it's interesting seeing Binance now moving to get the CFTC lawsuit dismissed after there was a reasonable market expectation of a settlement just a few months ago . Despite the recent Ripple ruling and the optimism that has resulted from it in the United States, the battle with US regulatory bodies for Binance is likely far from over. Unlike exchange competitors like Coinbase ( COIN ), Binance has historically been very active in the IEO market and that is something that could put further pressure on Binance domestically. Summary Recognizing that crypto is a global phenomenon, even with potential problems in the US based company, Binance can certainly survive outside of the United States if ultimately forced to leave the market entirely. But it's difficult for me to see how that would be a long term benefit to the company or the Binance blockchain specifically. I think the recent departures of so many executives is generally a bad sign. And I'd be very cautious about buying the dip in BNB. There's a lot of heat on this brand right now. There may come a time when longing BNB makes sense. But I personally don't think we're there yet.