What is the fair price of a Binance Coin (BNB)?
Our newest valuation is about one of the widest known project in the whole crypto space, namely Binance and its token BNB.
This article is not intended to explain Binance or its enormous ecosystem. We will focus on an investors perspective with a focus on a valuation for the BNB token.
Tokenomics
Before we can execute a valuation, we have to find out about the tokenomics of the project. Therefore it is key to find out about the current supply and the change in the supply (=inflation).
Circulating Supply
To get the current circulating supply, we can use the Binance Chain explorer: https://explorer.binance.org/asset/BNB
There we can see, that ~183 million BNB are in existence. But that is not the circulating supply, as the tokens (32.888.888 million BNB) in this address are currently frozen by Binance. Subtracting those 2 numbers results into a circulating supply of 150 million BNB. This number is quite similar to numbers shown on coinpaprika.com and coingecko.com. For our valuation we will use 155 million BNB, just to add more security of the valuation for the next weeks/months.
Total Supply
Initially Binance minted 200 million BNB. But every quarter Binance is burning tokens, according to internal calculations (many are speculating that it still depends on the quarterly earnings).
Subtracting the burned tokens from the initial supply of 200 million BNB gives us exactly the ~183 million BNB as the current total supply which we can see in the Binance Chain explorer.
Token Burn (Buyback)
As already stated above, Binance is burning BNB tokens in quarterly events. This article explains the burn in detail. In the eyes of an investor the token burn works similar to a buyback program. Therefore we use this as our basis for the valuation.
P/E Valuation
Given the earning possibilities for investors in the form of token burn events, we have decided to calculate a price-to-earnings ratio (P/E ratio). This valuation method indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings. It is also referred to as the price multiple.
The P/E Valuation is straight forward and gives us a good feeling about the current token price, as we can compare the PE ratio with projects in the same sector (“comparing apples-to-apples”).
On the profit side, it is very important to calculate the future potential. Therefore we use historical data from all previous burn events. For the 1st 9 burn events the average token burn in terms of USD was at ~$19 million USD. The last 2 burn events (Q4 2019 and Q1 2020) shows us a better picture of the current situation at Binance, therefore we give those 2 numbers a higher weighting when calculating the average burn. We calculate an average burn of ~$31 million USD, which implies a yearly profit of ~$630 million USD.
For our further valuation, we deduct 30% of this number. In that case we include unforeseen events and an uncertain future. We now calculate the earning per token, by dividing the implied yearly profit by the number of tokens. In our case we do it twice, once for the circulating and once for the total supply. The results are $2.84 and $2.41.
When we now calculate our PE ratio, by dividing the price of a token by the earning per token, we receive the PE ratio.
As a result we receive a PE of 5.27 for the BNB token
This number alone doesn’t give us the full picture, as we still have to compare this number to similar projects (peer group). As Binance is mainly an exchange, we use other exchanges, like the Nasdaq or the London Stock Exchange.
Our peer group PE analysis shows, that the average PE ratio is ~32.5. If we assume a fair PE ratio of 30 for BNB, we will receive a fair price of 85$.
In the following table we assume different PE ratios for the BNB token and the current earnings, which gives us the respective prices.
Therefore we can say, that compared to the used peer group, Binance is extremely undervalued. Starting from the current price of 15$ we have an upside potential of 570%!
Calculating with different PE ratios and Yearly Profits
The following calculations show the fair price of a BNB token for different assumed yearly profits and PE ratios (15,20 and 30).
Conclusion
Finally we can conclude that the BNB token is well established in the Binance ecosystem. The quarterly token burn events act as a tool of deflation and can be seen as a buyback program for investors. Our PE ratio valuation compared to similar projects show an undervalued BNB price with a good upside potential! We are curios to see, if the price will adjust to its fair value within the coming months.
Take it with a grain of salt and do your own due diligence!
This valuation is based on many assumptions and on information that is publicly available.
We will periodically update our estimations based on results made by the team. If you like our work, feel free to clap for this article! 👏👏👏
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Disclaimer: block42 is not a registered investment advisor, broker/dealer, financial analyst, financial bank, securities broker or financial planner. The information is provided for information purposes only. The information is not intended to be and does not constitute financial advice or any other advice, is general in nature and not specific to you.
We are not paid or mandated to do any of our reviews/valuations. This is just our own opinion. Please always do your own research before making any investment decisions.
