In early August, the Wall Street Journal issued a report that surprised sundry analysts and investors across the digital currency landscape: Despite China’s ban on crypto sales, that nation remains by far the largest market for Binance, still the world’s dominant exchange despite the recent onslaught from U.S. and overseas regulators. According to internal documents the story’s authors reviewed, as well as information gleaned from current and former employees, Binance in May hosted $90 billion in trades for Chinese customers. The Journal’s sources disclosed those transactions accounted for 20% of Binance’s total volumes, dwarfing the intake for second-place South Korea ($55 billion), and third-ranked Turkey ($40 billion).
The Journal story broke important news in revealing China’s crucial importance to Binance’s business, long after Beijing first banned its site in 2017, and made all crypto trading illegal in 2021. But the findings also provide a potential guide in gauging Binance’s annual revenues. Jiangsu-born chief Changpeng “CZ” Zhao hasn’t disclosed Binance’s turnover for several years, and financial information on the exchange is so cloudy that analysts aren’t even posting estimates.
Still, it’s clear that double hit from legal crackdowns targeting Binance and steep drop in overall trading of digital currencies has hammered the exchange’s volumes. The mystery centers on whether the damage is so severe that Binance, which CZ declares is “still profitable,” will soon start losing money. If Binance can’t collect enough revenue to cover its rent, personnel, data center, compliance, and marketing costs, it will need to start exhausting its war chest to meet the shortfall. And its capital rests primarily in a self-issued, relatively little-traded coin that—if Binance sells it to meet operating expenses—is vulnerable to a deep dive that could rock the crypto world.
Binance’s shockingly low trading volumes
The Journal’s finding that China’s $90 billion in trading for May accounted for one-fifth of Binance’s overall business implies that its volumes for the month totaled $450 billion. The story specifies that the $90 billion comprises both spot and futures transactions, the latter the most important contributor by far. Hence, on an annualized basis, Binance’s sales would be running at around $5.4 trillion (12 months x $450 billion). This is an astoundingly low number that would signal a recent collapse in Binance’s revenues, and a strong probability it’s already booking losses.
The Journal, however, adds an important proviso. The piece notes that the $90 billion figure for China “[excludes] trades made by a subset of very large traders.” It doesn’t take a stab at estimating how much crypto those whales are buying and selling on Binance. So the all-in China number is bigger than $90 billion. We just don’t know by how much.
CCData provides contrasting numbers to Fortune
This writer asked CCData, a leading global digital currency data provider that tracks trading volumes for a number of exchanges, to provide a detailed breakdown for Binance from 2021 through the close of July. As a CCData analyst told Fortune, “We’re plugged into the exchange. We get the data directly from Binance, trade by trade.”
CCData shows volumes much higher than the annualized $5 trillion–plus hinted at in the Journal piece, though the absence of “those very large traders” makes data from the two sources difficult to compare. Still, the CCData numbers trace a downward spiral in Binance’s business, caused by a combination of an overall fall in crypto trading since the summit in 2021, and in recent months, a decline in Binance’s part of that shrinking market.
In 2021, digital currency transactions boomed, reaching $74 trillion for the year, according to CCData numbers. Binance captured an incredible $31.7 trillion, or 43% of those trades. The frenzy cooled considerably last year. Volumes fell by over one-third to $48.7 trillion. Though Binance slightly grew its share, the overall retreat lowered its take by 26% to $23.3 trillion.
In 2023, the scale of all global transactions kept falling. But Binance got a big boost via the collapse of its premier global competitor, FTX. From January through March, Binance’s trading defied the downturn by running at the same yearly dollar rate as in 2022. The turning point came in March, when Binance ended a promotion, started in July of last year, allowing spot customers to buy and sell Bitcoin, using the most prominent coins, at a zero fee.
From the start of April through the end of July, Binance suffered a dramatic downshift in horsepower. Its annualized volumes slowed to $16.8 billion a year, down around 28% from both the first three months of this year, and measured against 2022. After hitting 55% in spot and 65% for futures in February, its shares dropped respectively to 40% and 56% in July. Keep in mind that Binance is now capturing a smaller piece of a pie that’s much reduced from either 2022 or even the first quarter of this year.
What Binance’s falling volumes could mean for revenues—and BNB
In May, CCData posits that Binance did $1.3 trillion in trades, three times the number derived from the Journal’s reporting that China accounted for 20% of Binance’s volume that month. This doesn’t mean the Journal’s numbers are incorrect. We simply don’t know how much including the business from its largest customers would have increased the implied total.
Let’s see what the current annual run rate of $16.8 billion, as shown in the CCData figures, might mean for Binance’s revenues. Binance earns a maximum 10 basis points, or one-tenth of 1% on spot trades, and between 2 and 4 bps on futures. But it offers huge discounts for major customers under its “VIP” program. For example, a fund or market maker that pays with its native BNB coin gets 25% off on spot transactions, and a 10% reduction on futures. Holding BNB in your account, and doing lots of trading, garners further reductions that can take fees down far more than 50% off the top posted rates.
Over the past four months, Binance has done an annualized $2.8 trillion in spot transactions, and $14 trillion in futures. By Fortune’s estimate, the fees it actually collects, after those steep discounts, might be 7 bps for spot and 2 bps for futures. If so, the revenues from the former are running at $2 billion, and from the latter at $2.8 billion. That’s a total of under $5 billion. Using the same analysis, the number in the peak year of 2021 would have been closer to $10 billion.
This writer, however, finds reason to believe that Binance’s revenues are actually well below $5 billion. The reason: It’s offering a big promotion for its VIP customers likely to take my estimated, post-discount 7 bps take on spot trading—its most lucrative category—a lot lower. Big traders now pay zero commissions on all purchases and sales pairing Bitcoin and the prominent TUSD token running on Ethereum, and for transactions linking Binance’s stablecoin BUSD and all other cryptos except Bitcoin, BNB, and Ether.
Fortune provided Binance a summary of the assumptions that went into these estimates and the view that its revenues have most likely fallen below $5 billion a year. By email, Binance furnished the following response: “As a private company, we don’t share financial information publicly, but your estimates are not correct.”
The impact of falling revenues on BNB
CZ has acknowledged that Binance holds large amounts of BNB on its balance sheet. Crypto data analysts have put this number at 60 million to 70 million coins. Binance did not object when I submitted that range for a previous story. Taking the midpoint of 65 million, that’s around 45% of the roughly 150 million BNB extant. At BNB’s current price of $243, its all-in market cap is $36.5 billion, and Binance harbors about $16 billion worth in its treasury.
The rub: BNB’s fundamental value is closely tied to Binance’s revenues. The “highest and best use” that establishes the bedrock value for all of BNB is the dollars of potential discounts it commands on trades. The less money Binance gets from matching buyers and sellers, the less BNB is worth, at least in principal. Here’s the math. At Binance’s spot annual run rate of $2 billion, BNB’s 25%-off saves customers $500 million a year. The 10% break for the $2.8 billion in futures equals $280 million. In other words, BNB’s good for a maximum of $780 million per year in discounts.
We can apply a multiple to see the market cap that $780 million in commissions savings should command. Successful private companies can sell at a P/E of six. But that’s too high for BNB, because its sponsor, Binance, is a declining, high-risk enterprise. So let’s apply a multiple of four. Doing so puts BNB’s fundamental value at $3.1 billion.
But it’s selling at almost $37 billion, over 10 times that number! That’s a valuation higher than for all but 225 U.S. publicly traded enterprises, and equals the individual caps of Biogen, Dell, and Ross Stores. BNB’s price is protected because the Binance team and the company itself hold the vast majority of coins, and customers get additional discounts for locking it in their brokerage accounts. Those conditions keep daily transactions extremely low, and the price high.
The danger comes if Binance’s revenues drop so low that it’s forced to start liquidating its BNB stash to pay operating expenses. Forced sales of this heretofore extremely risky, illiquid coin could prompt the non-team, non-company holders to dump their BNB as well, causing a rush toward fundamental value, thus erasing tens of billions in crypto market cap. For Binance, the fall would eliminate what now appears a substantial, over $16 billion cushion against hard times. But hard times for Binance threaten ruin for BNB. And the crunch has already commenced.
