CRYPTO MOVERS AND PRICES
Crypto was broadly selling off this morning. Spot volumes are about 2.5x the 30-day average.
Crypto Story of the Day
Last week, Bloomberg reported that Binance is under investigation by the U.S. Justice Department and IRS. The legal uncertainty faced by Binance is most concerning for alt-coins, for which Binance has emerged as an essential marketplace.
Binance, a crypto-to-crypto trading venue considered to be the largest by volume, offers the most extensive range of alt-coins for trading. A total of 305 different coins trade on the venue, compared to 137 on Bitfinex, 58 on Kraken, 60 on Coinbase, and 10 on Bitstamp.
Binance, known for often being the first centralized exchange to list new coins, has played a key role in the proliferation of alt-coins that have emerged on DeFi venues over the past year. For example, Binance listed SUSHI only 3 days after the SushiSwap launched as a fork of UniSwap in August 2020 (SUSHI was trading on UniSwap weeks before, where it acquired its initial liquidity).
Most recently, Binance listed SHIBA INU (SHIB), a token created by an anonymous team last year which gained recent traction on DeFi and has seen its market cap reach USD 13 billion in a matter of days.
Binance has also used listings to support the Binance Smart Chain (BSC) ecosystem. For example, Binance is the only major centralized exchange to offer trading in BSC-based DeFi venue PancakeSwap’s CAKE token. The exchange listed CAKE when the asset barely had a verifiable market cap in September 2020.
Binance lists early tokens via its “Innovation Zone.” To access the Innovation Zone, users need to correctly answer 2 questions about risk tolerance, the answers to which are on Binance website. Last year, Binance launched a USD 100 million “Accelerator Fund” to support projects building on BSC. The fund included USD 10 million in “liquidity support” for DeFi venues on BSC.
Historically, exchange stress has been a decisive driver of price weakness. For example, in late 2018, we associated a 50% decline in the price of BTC closely with Bitfinex fiat withdrawals being frozen due to banking issues. However, despite major exchange issues in late 2020, such as charges against BitMEX and OKEx suspending withdrawals due to key management issues, BTC and crypto continued to rally.
Significant exchange stresses last year didn’t interrupt crypto’s bull market. However, Binance’s unique role in offering a marketplace for low liquidity coins and its support for the BSC ecosystem could have knock-on effects for portions of the alt-coin market. For example, interruptions to Binance’s ability to list early BSC coins would adversely affect demand for those tokens, which are otherwise only available via DeFi venues.
Binance has acted as a major springboard for some alt-coins and their associated ecosystems, which would find difficulty gaining traction without a listing on the venue.