Bitcoin: Will the rise of exchange tokens pose a threat to the top coin?

Exchange tokens like Binance Coin [BNB], Huobi Token [HT], OKEx’s OKB, and many others have gained a lot of traction lately; BNB and HT even rank among the top 20. Some of these Exchange Tokens[ETs] had even outperformed Bitcoin in 2019.

Bittrex Global, Bittrex’s Europe-based exchange partner is also launching an exchange token in June 2020. Binance US’s Catherine Coley, in a recent podcast,  addressed the increasing usage of BNB and also shared her thoughts on the future of these exchange tokens.

Noting how BNB holders have a variety of advantages over those who don’t, she stated,

“Holding even one BNB gives you such a benefit on our platform. Exchange tokens are the ones that are driving kind of true business revenues and true business models; that’s the reason we are seeing such a pickup of these specific tokens. As these businesses grow the coins required to unlock certain aspects of these platforms also grow by a sheer number of users that are now joining the platforms.”

However, the main question here is ‘Is it worth investing in an exchange token?’, ‘Are there any underlying risks here?’; the goal, the mechanics, and the market fit of these exchange tokens are the basic points to consider . Exchange tokens‘ main goal, as Coley notes are to give certain advantages to its users like trading fees discounts and other rewards. In fact, these exchanges apply multiple strategies to boost the price of their ETs. The most common strategy is the token buy-back.

Source: BNB/USD, TradingView

As seen in the attached chart, BNB, after experiencing a 45% on March 12, recovered real soon and has breached major resistances; it has found support at $14.83 at the moment. Being one among the fast-recovery coins, BNB proves its potential in being a good investment.

That said, one should also consider regulatory compliance when looking at ETs. As they are marketed as utility tokens which make them exempted from securities laws. The security in these ETs is another major concern as a major security breach in any of these exchanges can send the corresponding ET into turmoil. However, major exchanges like Binance, OKEx are taking measures to prevent these accidents.

Although exchange tokens’ distinctive features make them a safer investment option for institutional and traditional investors, the fact that they are under the control of the large exchanges brings in the concern of centralization back into the picture.