Burns of tokens: why they count for investors
In the world of cryptocurrencies, a token burn is a crucial concept that can have a significant impact on investors. So what exactly is a token burn?
What is a token burn?
A token burn is an event in which the tokens of a cryptocurrency are destroyed or “burned” to reduce its diet in circulation. This process is to transfer tokens from the portfolio of a major exchange, such as Coinbase or Binance, to a secondary market as a decentralized exchange (DEX) or a private sales platform.
** Why are chip burns important for investors?
Token burns can have large -scale consquests for investors in several ways:
- Reduction of the offer : When a token burn occurs, it reduces the offer without a token without AVIA on the market. This can lead to an increase in demand and prices while hollows seek to buy their tokens.
- Price pike : Wet burns can cause significant price peaks because investors react to the sudden drop in supply. In some cases, this can lead to a sharp increase in the value of the token.
- Handling the market : A large -scale token burn can be considered as a market manipulation by exchanges or other parts. Indeed, this creates an artificial rarity of tokens which are then quickly sold at swollen prices.
- Liquidity risk
: chip burns can also create liquidity risks for investors, in particular those with long positions in cryptocurrency. If a large number of holders sell their tokens to meet a burning event, liquidity can decrease, which makes it more difficult to buy or sell the token at favorable prices.
- Regulatory risks : While governments and regulatory organizations are beginning to take note of the growing use of cryptocurrencies, they can impose more strict regulations on exchanges and other market players who engage in token burns.
Types or token burns
There are several types of token burns that investors should be aware or:
- Burns driven by exchange : these occur when a major exchange, such as Coinbase or Binance, engages in a large-scale token burn event.
- Burns of the secondary market : These occur when secondary market platforms, such as DEX or private sales platforms, participate in tokens burns by buying tokens and then selling them at swollen prices.
- Private sales burns : A thesis occurs when an investor buys his own tokens from another investor or a company.
Examples or token burns
Some notable examples or token burns include:
- Coin supported by the FBI (FBC) : In 2020, the FBI dropped $ 5 billion in cryptocurrency assets linked to FBC, an exchange which was closed for its role of its role in facilitation of money laundering.
- Coinbase Burn : In January 2019, Coinbase burned a large part of his own tokens as part of its transition to a decentralized exchange (DEX).
- Huobi Burn : In November 2020, Huobi, a great exchange of cryptocurrency, burned more than $ 100 million in coins in one day.
Investor strategies
To browse burns effectively, investors should:
- Diversify their portfolios : Distribute investments over several cryptocurrencies to minimize losses due to chip burns.
- Hold up to date with Market News : Stay informed of token burns to come and other market travel events.
- Consider burn events of tunuments as trading opportunities : Many chip burns events can be considered as purchasing opportunities, especially if the burn is large enough or if the price of the results is important.
- Be careful of exchanges engaged in large -scale burns : Misfit of exchanges which engage in large -scale tokens burns, as this may indicate the manipulation of the market.
Conclusion
Start burns are a crucial aspect of the cryptocurrency landscape, with large-scale consquests for investors.