The ongoing sell off in the market has pushed the price of Binance Coin (BNB) further below the $10 mark at an average price of $9.79 USD representing a 35% drop since the start of the month. A Venture Capitalist at Crypto Asset Management, Andrew Kang has carried out an analysis on the fundamental value of BNB coin in the current market using the classical theory of money titled, “An In-Depth Valuation & Analysis of Binance Coin (BNB ) — Fairly Valued and a Potential Store of Value?”. The model adopted focuses on Binance coin as a medium of exchange with the price, quantity, velocity and money supply derived from the stats on Coinmarketcap.
Before you get to calculate the metrics affecting the price of BNB coin, it is important to focus on the value and use of the coin to its users. The coin is used for discounts on transaction fees when paid using BNB, double referral bonuses for users with holdings of 500 BNB and above, to secure voting rights on the Community Coin of the Month competition and as a base asset with multiple cryptocurrency pairs on the exchange.
The Classical theory of money on BNB
For those not familiar with the classical theory of money, it states that to obtain the price in the economy, get the money supply and velocity of transactions in any particular economy and divide it with the quantity of the resource supplied in the market. To illustrate, check the equation below
- M = “total money supply” i.e. size of the crypto asset base
- V = “velocity of the asset” i.e. frequency that tokens change ownership in a given time period
- P = “price of the resource” i.e. price of the goods and services being transacted/provided by the network
- Q = “quantity of the resource” i.e. quantity of the goods and services being transacted/provided by the network
Deriving the $13.50 USD utility value of BNB
First, we can determine the price and quantity of Binance coin (BNB) from the total exchange fees paid on transactions (assuming 100% users pay fees using BNB) and the total volume of BNB traded on exchanges. The other two metrics, money supply and velocity are not easily determined across cryptocurrencies as most are used as assets and HODL’d. However, the incentive of 25% off all fees of transactions made using BNB are easily determined with the values on Coinmarketcap.
Price and Quantity
The price and quantity of BNB is calculated as one equation. Given a 25% discount in the coming year, and all fees being paid through BNB, a total of 7.3M BNB will be paid in fees daily translating to 274 M USD annually. The total daily volume traded on exchanges is at an average of 95M per day which translates to $34.7 B USD worth of BNB traded. The sum of the two totals to $34.8 B USD annually.
Assuming all the fees are made in BNB and the total circulating BNB tokens is at 139M tokens, we can calculate the total velocity of BNB as the total volume of 7.3M BNB tokens traded translates to 2.66B BNB traded annually. Dividing the two gives a total velocity of 19.1. Note that this does not capture the velocity occurring from payments of transaction fees. However, the amount of BNB used for transaction fees, is less than 1% of the BNB trading volume, so we can consider the additional velocity negligible.
Focusing on the three metrics and plugging them to the equation, the Money Supply (M) can be calculated at $1.8 B USD which translates to about $13.13 USD per token of BNB. The total number of circulating tokens is set at 144M. This is the utility value of the Binance Coin BNB token.
We have not considered burning of tokens or any speculation. This is not investment advice, do your research before investing.