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Binance Coin: You Better Hodl Fast

Binance Coin: You Better Hodl Fast

Binance.com is one of the largest cryptocurrency exchanges by volume. Binance launched its blockchain Binance Coin (BNB) back in July of 2017. It seems to be going well for the platform as BNB is already the 7th largest cryptocurrency by market capitalization.

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With a Market Cap of nearly $4.5 billion, BNB is the 7th largest

As you may have already guessed, the name “Binance” is a combination of Binary and Finance.

HODL (Hold on for Dear Life)

Sometime back in 2013 the term “hodl” was introduced. One story I heard about the etymology of the word was it was a misspelling of “hold” and then became a sort of acronym meaning “Hold On for Dear Life”. Which is in reference to the violent downswings (and upswings) cryptocurrencies can experience and that one should hold (or “hodl”) through these periods.

HODLing BNB

BNB coin started out as a way to pay for trading fees. Binance would reduce the trading fees, if they were paid in BNB. I actually owned some BNB fairly early on (as in a couple years ago) simply for this reason.

I wish I’d hodl’d my BNB! Although I had no way of knowing it would go up 27,334% percent.

hodlfast
You better hodl fast (Master & Commander anyone?)

I’m of the old-fashioned belief that a cryptocurrency needs to have some sort of non-speculative use. The value of bitcoin can’t just be (long term) a speculative vehicle. Things eventually return to their non-monetary use value.

That is one of the reasons I like BNB: it has quite a variety of non-speculative uses such as: reducing trading fees on Binance (currently up to 25%) and for posting as collateral for loans. There are many other uses listed on binance.com.

Source: https://www.binance.com/en/use-bnb

I heard (although I can’t cite this) that BNB is going to be used for a distributed exchange at some point.

Imagine Reducing the Currency Supply!

Another reason to like BNB is that they are planning on burning up to 50% of the supply (the exact opposite of price inflation!). So that eventually there will only be 100 million BNB in circulation.

So if you want to speculate on cryptocurrencies, you might want to buy some BNB. But if you do, you better hodl fast.

Bitcoin Cash

Bitcoin Cash

As expected the Bitcoin Hard Fork occurred around 12:20 UTC today. A new cryptocurrency, Bitcoin Cash (BCH or BCC depending on the exchange) was born. It shares the same history as Bitcoin up until today in what I’ve already referred to as a modern day¬†Ship of Theseus paradox.

So which Bitcoin is the real Bitcoin? BTC continues with a similar price as before and Bitcoin Cash was a new node to begin with so certainly Bitcoin remains bitcoin.

But it’s another example of how a brand new cryptocurrency, one which a current market cap of over $6 billion, can be created seemingly out of thing air.

I understand that Bitcoin Cash has the support of some miners, and work went into the technical changes (it has a larger block size, in an attempt to overcome some of Bitcoin’s scaling issues). But is it really worth $6 billion?

Source: coinmarketcap.com

The market seems to think so and that is all that matters in the present.

In the short term each BCH is trading for around $375 as of writing. My plan, which I previously shared, worked flawlessly.

Upon hearing about the hard fork, I moved my Bitcoins from an exchange that did not support BCH, to an exchange that did. When the fork happened I retained my original Bitcoins, but was also awarded an equal amount of Bitcoin Cash. I doubled my Bitcoins! (Sort of) The original Bitcoin is still trading around $2,700 and as stated above the new BCH I receive are only worth $375 each.

Learning from Past Mistakes

This is an example of how I was able to learn from a past mistake to benefit.

I missed out on coins resulting from when Ethereum forked. The place where I had my coins, hashflare.io, famous for unprofitable cloud mining, did not support the fork. I wasn’t about to let that happen again. If I’d been on an exchange that supported Ethereum Classic, or had my Ethereum in a wallet where I controlled the keys, I could have received 1 ETC for each ETH I held.

Cryptocurrencies are Inflationary

As I’ve written about before, one of the things that I dislike about cryptocurrencies is that there are no natural limits on the supply. Bitcoin Cash is a perfect example. Sure, the number of Bitcoins (BTC) did not increase, but a coin very similar to BTC, albeit with less network hashing power and some technological differences, was created, which in some sense doubles the amount of Bitcoins in existence.

Playing the Fork

The market doesn’t seem to care about the Bitcoin hard fork, BTC was trading up near around it’s all time high of $2,910 the day before the fork and is still at $2,700.

One could theoretically have purchased 3 BTC right before the fork for $2,900 each ($8,700 total). Then the fork happens, and the person gets to keep their 3 BTC and also gets 3 BCH, each worth $375 ($1,125 total). The price of BTC then falls to $2,700. So one would have lost $600 total on the BTC, but gained $1,125 on the BCH, for a net of $525. Not bad. That’s a 6% increase over just a few days.

Easier to talk about with the benefit of hindsight, but if someone is already holding Bitcoins, there is no financial risk to being a position to get the newly created cryptocurrency.

Long Term Problems

The market doesn’t seem to care about the Bitcoin hard fork, it was trading up near around it’s all time high of $2,910 the day before the fork and is still at $2,700. But in effect 6 billion USD worth of value was created out of thin air. Over the long term this simply isn’t sustainable. Is the price really coming from new money buying up BCH as the future cryptocurrency? It seems unlikely. The supply of cryptocurrencies continues to grow and Bitcoin Cash is only the latest example.

I’ll continue to hold various cryptocurrencies as a speculation that one or more takes off (even more) and reaches widespread adoption but as a long term investment I think it remains very risky.