Lately it seems like everyone from Binance (BNB-USD) to Shiba Inu (SHIB-USD) is in the news for “token burns”: crypto’s version of a stock buyback. Let’s see what’s going on here and why it’s such a crucial – yet little-known factor in picking the right crypto plays…at the right time.
Token Burns Keep SHIB on the Leaderboard
If you’re not that familiar with Shiba Inu… It’s actually a little different from Dogecoin (DOGE-USD). While DOGE was created as a joke by “hard-forking” (basically: copy/pasting) Litecoin (LTC-USD) in 2013… SHIB was built on Ethereum (ETH-USD) in 2020, supposedly because its creators “love Shiba Inu Dogs.”
Both puppy-themed “meme coins” just can’t be dislodged from the Top 15 cryptos by market cap. Why, when there appears to be nothing but speculative froth behind them?
Well, Shiba Inu, at least, is building a metaverse, with SHIB powering its in-game economy… However, some of us at InvestorPlace may be willing to concede that “Shiba Inu Has Utility, But Many Investors Simply Don’t Care.”
Even if you do spot a “SHIB ARMY” sticker or two in the wild (as I have, on a MacBook at Panera Bread)… People sound like they’re in it for the laughs – and the gains.
Those gains could simply be triggered when a bunch of SHIB is burned. For example, 140 million SHIB were burned over the weekend, and the price popped +15% by Tuesday.
Token burns are pretty simple: The crypto is sent to “a digital wallet that can’t be accessed because it doesn’t have a private key attached to it, like a lock that someone never built a keyhole for,” explains Decrypt. Those wallets are called burn addresses.
“Sending a token to a burn address effectively removes the digital asset from its overall supply, locking it up in the hands of nobody and preventing the asset from ever being traded again.”
SHIB, for example, got its big break in May 2021 – when Ethereum founder Vitalik Buterin burned more than 410 trillion SHIB he had been randomly gifted by Shiba Inu’s creators. This was half the total supply, and Vitalik’s moves sent SHIB soaring +2,189% – before crashing back to, well, +444%.
Similarly, the hype-y “move to earn” token, Stepn (GMT-USD), got crushed even before the broad crypto collapse in May/June… But Stepn gained a nice +27% in a week after the company dedicated 5% of its profits to a token-burn last Tuesday.
And Then There’s an “Auto-Burn” Crypto
Also in the past week, 1.9 million Binance Coins were burned in one day. In fact…this was the 20th burn event since Binance launched its native crypto five years ago.
That’s because BNB Chain is specifically built to do this each quarter, until BNB gets under 100 million in supply. (Supply was originally 200 million, and it’s currently more like 160 million.)
Binance’s Auto-Burn system “offers greater transparency and predictability to the BNB community”…and a “deflationary effect.” BNB gained +16% in five days after this latest burn alone.
Infamously, Terraform Labs structured its algorithmic stablecoin, TerraUSD (UST-USD), and native crypto, Terra (LUNA-USD), with a burn relationship between them. Specifically, to buy a UST stablecoin, you’d have to mint one first – which involved burning $1.00 worth of LUNA…and vice-versa.
In theory, this maintained UST’s “peg” to the actual U.S. dollar. If traders saw UST dip below $1.00, they would swoop in to buy it – trade it in for their $1.00 of LUNA – and pocket the difference.
This “arbitrage” incentive kept the system working…for a while. But ultimately, Terra’s token-burn algorithm was no match for the “crypto winter.” As it turns out, there’s a reason why the U.S. monetary system is built on the “Federal Reserve.” Stablecoins need better reserves…
And blockchains need more than just an auto-burn function to survive and thrive. They need “honest” growth – from real users. That’s what gives Binance’s BNB crypto the advantage.
Binance Coin is already a staple of our InvestorPlace Ultimate Crypto portfolio, which is up 1,467% on BNB since April 2020! Last week, Luke Lango and Charlie Shrem reiterated BNB is a Strong Buy for new members…
And now, in this crazy, mixed-up bear market, you can see why our analysts decided it’s time to put the “Burn Code” to work again.
Charlie picked up on this event, and our publisher asked him to get together with Luke and our crypto team of Caltech engineers to rush out an urgent briefing walking you through the steps you should take today.
Afterwards, they’ll have an investor report for you: The Burn Coin With 10X Potential. Click here to see the strategy and the hot new pick (so to speak).
On the date of publication, Ashley Cassell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. To have more news from The New Digital World sent to your inbox, click here to sign up for the newsletter.