Binance’s Ecosystem Sees Recovery, But BNB Still Faces Challenges

Binance’s Ecosystem Sees Recovery, But BNB Still Faces Challenges

Binance, one of the largest cryptocurrency exchanges, faced several challenges at the beginning of 2023. These challenges included regulatory crackdowns and an increase in the number of hacks on its BNB Chain. However, amidst the uncertainty, there was a silver lining for the crypto juggernaut.

Rebounding Network Activity

After sustained periods of decline, network activity on the BNB Chain has started to rebound. On May 9th, the daily active users shot up to 1.41 million, the biggest surge seen in more than a month. Moreover, the jump in the number of users boosted the overall trading activity as the transaction fees collected on the platform also hit a 2-week high.

Declining Liquidity

While the growing network traffic could have cheered the BNB fanbase, the liquidity on the chain continued to deplete. The total value locked (TVL) on the BNB Chain was in a steady downtrend, falling more than 15% over the last month to $5.37 billion at the time of writing. This was the steepest monthly drop among major blockchains. The dwindling liquidity coincided with BNB’s price trajectory over the last month. The exchange token shed 4.7% of its value in the last month, data from CoinMarketCap revealed. Due to the continuing downturn, investors’ sentiment plunged back into negative territory. The MVRV Ratio also declined sharply, indicating that most holders of BNB would incur losses if they were to sell their tokens. The uncertainty led large addresses to adopt the wait-and-watch approach as supply held by them plateaued in May after steadily rising during the last week of April.

Volume on Binance Plunges

According to data analytics firm CCData, spot trading volume on Binance fell by 48.1% to $287bn in April. This marked its second-lowest monthly trading volume since 2021. Moreover, its market share declined, dropping to 46.3% for the second consecutive month, the lowest level since October 2022. However, it was not only Binance which felt the pinch. The financial contagion induced by the collapse of big banking entities in the U.S. engulfed other centralized crypto exchanges (CEXs) as well. Spot trading volume across all CEXs fell by 40% in April, the lowest since December.

Regulatory Environment

According to a report by Financial Times, one of the top officials from Binance lashed out at the current regulatory environment for crypto trading in the U.S. and would do “everything it possibly can” to be regulated in the UK. In summary, while Binance’s ecosystem witnessed a rebound in network activity and overall trading, the decline in liquidity and volume, coupled with regulatory challenges, continue to be a cause of concern for Binance and its investors.