Binance’s BNB token has been in a bit of a freefall lately despite a net positive week for the cryptocurrency markets.
Used as a utility token on Binance’s centralised exchange and blockchain network and generally seen as a proxy for investor sentiment into Changpeng ‘CZ’ Zhao’s crypto empire, the BNB/USD pair fell to lows of US$255 on Tuesday morning.
On a week-by-week basis, that price represented a near 14% dip.
In contrast, the benchmark cryptocurrency bitcoin (BTC) was down less than 1% in the same period.
Yet in the space of a few hours early Tuesday afternoon, BNB had rebounded to highs of US$280 and at the time of writing, is showing potential to rally further by the session close.
What’s driving BNB’s wild mood swings?
Ignore the FUD, says CZ
In a week that saw the long-coming arrest of Sam Bankman-Fried, Binance seemingly had its own legal scares to deal with. Following publication of a Mazars audit, some commentators were quick to offer their take on Marzars’ findings.
“Binance’s “proof of reserve” report doesn’t address effectiveness of internal financial controls, doesn’t express an opinion or assurance conclusion and doesn’t vouch for the numbers,” said former SEC enforcement attorney John Reed Stark, calling the audit a “red flag”.
Reuters also reported on a money laundering investigation into the exchange, stating on Monday that “splits between US Department of Justice prosecutors are delaying the conclusion of a long-running criminal investigation into the world's largest cryptocurrency exchange Binance”.
Binance’s outspoken head CZ repeatedly wrote off the double-hit of negative press as FUD (industry parlance for fear, uncertainty and doubt) in numerous Tweets.
Ignore FUD. Keep building!
— CZ ???? Binance (@cz_binance) December 12, 2022
But data shared by CoinDesk proved the potency of bad press in the crypto markets, with blockchain intelligence platform Nansen disclosing that over US$900mln of net assets were withdrawn from the exchange by spooked traders.
For context, that was nearly nine times the outflows of the second-biggest net loser Bitfinex.
Despite Mazars’ audit showing that funds on Binance are fully collateralised, BNB token plunged to three-week lows.
As a result, moving averages, which were flirting with a bullish crossover, widened to the downside on the four-hour chart, dashing a potential recovery being entertained by bitcoin.
The 20-day moving average (MA) widens south of the 50-day MA in a bearish manoeuvre – Source: currency.com
Deflation to the rescue
Today’s US inflation reading came in lower than expected - quite notably so.
Forecasts of 7.3% underestimated the rate of economic cooling, with the last reading of the year coming in at a 12-month low of 7.1%.
The soft reading will provide the Federal Reserve doves with ammunition heading into Wednesday’s interest rate decision, when a 50 basis point (bps) hike after three straight 75 bps hikes is all but a given.
In anticipation of rate cuts after a year of inflation-busting hikes, US equities have been on a risk-on rally, with the S&P 500 index up 1.7% and Nasdaq up nearly 2.5%.
As part of the risk-on mix, the cryptocurrency markets joined the rally, with BTC up over 3% today and BNB seeing a considerable rebound from intraday lows.
BNB still has a lot of work to do to make up for the recent FUD rally, especially considering the strong sell walls pitch up at 10-dollar increments from US$280 onwards.
If you ask CZ, “FUD helps us grow”, but you should probably make your own assessment before buying into the dip.