Analysis of the investment potential of the two major platform currencies (Binance, Huobi)

1. Interpretation of Binance and Huobi destruction reports

On October 15th and 17th, Huobi and Binance announced their respective burning reports for the third quarter of 2019. Before analyzing the relevant data with you, let me share with you my thoughts on interpreting the reports of the two exchanges:

I think that Binance and Huobi are not blockchain companies but traditional companies in essence, but their business objects are digital currencies, but their operation methods and profit models are the same as traditional companies.

After traditional companies become bigger and stronger, they generally choose to issue shares through listing. Binance and Huobi are not listed but also issue their own "stocks" which are known as platform coins.

A very important reference index for us to measure whether a listed company is worth investing in is the price-earnings ratio. Its calculation formula is as follows:

Price-to-earnings ratio = price per share / earnings per share.

Note that earnings per share here refers to net profit per share.

Applying this formula to the two exchanges, the price per share corresponds to the price of the platform tokens of the two exchanges, and the profit per share is the net profit of the two exchanges.

The reports of the two exchanges give a lot of data, and I have intercepted the key data to share with you.

2. Huobi Burn Report and Interpretation

In Q3 of this year, Huobi repurchased a total of 11.3321 million HT, of which 8.3389 million came from the direct repurchase of the secondary market, and 2.9932 million came from HT deduction income. In Q3 of this year, Huobi invested a total of 40.637 million US dollars in HT repurchase/destruction.

As of the end of the third quarter of 2019, Huobi has destroyed a total of 33.5883 million HT. 20% of Huobi’s Q2 revenue burned 14,011,700 HT, and 20% of Q1 revenue burned 6,474,800 HT.

Huobi revised the HT burning plan in July this year, and decided to use 20% of its quarterly revenue for HT repurchase. In the third quarter, Huobi used USD 40.637 million for repurchases, from which we can calculate that Huobi’s revenue in the third quarter was USD 200 million. If we convert this quarter's revenue directly into annualized revenue, it will be $800 million.

As of the end of the third quarter, Huobi has burned a total of 33.5883 million HT. In the first three known quarters, Huobi burned the least amount in Q1, which was 6.4748 million. We conservatively calculate that assuming that the number of burned in the fourth quarter is also 6.4748 million, then by the end of this year, Huobi will burn a total of 40.0631 million pieces.

The total circulation of HT is 500 million, and 40.0631 million is removed to get 460 million.

The average income of each of these 460 million HT is 800 million US dollars / 460 million = 1.7 US dollars. However, whether this income is net profit, since Huobi is not a listed company, it is impossible to verify the real data, and the actual net profit may be smaller than this value. But I will treat it as net profit for the time being in the following calculations.

As of writing, the price of HT on coinmarketcap is $3.4.

This gives us a Huobi “P/E Ratio” of approximately $3.4 / $1.7 = 2.

Since the net profit of US$1.7 in the data may be greater than the real value, Huobi's actual "P/E ratio" may be slightly greater than 2.

3. Binance Burn Report and Interpretation

Binance burned 2,061,888 BNB in ​​Q3 this year, worth $36.7 million. Binance destroyed 808,000 tokens in Q2 2019, and 829,000 tokens in Q1 2019.

Binance’s current burning rule is to burn BNB equivalent to 20% of the profit. From this, it can be calculated that Binance’s profit in the third quarter was 183.5 million US dollars, and the annualized profit was 734 million US dollars.

According to the previous burning records released by Binance, including this one, Binance destroyed a total of 12 million BNB. We also adopt a conservative algorithm, based on the calculation that 808,000 BNBs were destroyed in Q2, which destroyed the least amount this year. Assuming that 808,000 BNBs were destroyed in the fourth quarter of this year, a total of 12.81 million BNBs will be destroyed by the end of the year.

The total circulation of BNB is 200 million, excluding 12.81 million, we get 187 million.

The average profit for each of these 187 million BNBs is $734 million / 187 million = $3.93. Similarly, I can't verify whether this data is net profit. I think the actual net profit may be smaller than this value. But I will treat it as net profit for the time being in the following calculations.

As of writing, the price of BNB on coinmarketcap is $18.48.

This gives us Binance’s “P/E Ratio” of approximately $18.48 / $3.93 = 4.7.

Since the net profit of $3.93 quoted in the data may be greater than the real value, the actual "P/E ratio" of Binance may be slightly greater than 4.7.

4. The investment value of BNB and HT

Judging from the price-earnings ratio of BNB and HT, although what we get is only an approximate value, if they are placed in the stock market, the price-earnings ratio is quite low.

The price-earnings ratio of Binance is higher than that of Huobi, but considering Binance’s head effect and its dominant position in the exchange, this premium is more reasonable.

It is worth noting that it is not easy for the two exchanges to achieve such performance under the current bear market, which also proves the tenacious vitality and advantages of the two exchanges. Once this advantage is established, it is difficult to replace it.

BNB has fallen 54% from this year's high of $40, and HT has fallen 32% from this year's high of $5. The bubbles in the two have been squeezed out a lot.

Overall, both Binance and Huobi have good long-term investment value at the current price.