BNB (Binance Coin)

 

BNB (formerly known as Binance Coin) stands for "build and create". Along with adding to BNB's on-chain transactions (similar to gas on Ethereum), BNB also acts as a token of governance. Holding BNB gives you the right to make your voice heard and is necessary to participate in the decentralized management of the BNB chain. This name change also brings more benefits to users, projects and developers who join the BNB chain community. Over the past year, the community has introduced many technical improvements for progressive decentralization.

BNB has multiple additional use-cases, as it offers trading discounts on Binance.com, can be used as a payment asset on third-party services and entails participation rights for Binance Launchpad.

We will then analyze the data in order to better understand to what extent BNB provides further diversification to an investor’s portfolio.

The BNB portfolio performs better than both the benchmark and the BNB + USDT in terms of both, annualized returns and Sharpe ratio, though — once again — the BNB portfolio is subject to a noticeably higher level of volatility than the others.

Generally, modern portfolio theory assumes that the distribution of returns can be adequately understood through the use of the distribution’s mean and standard deviation; within this context, these two metrics allow investors to calculate average returns and volatility. However, the distribution of returns for financial assets rarely, if ever, follows a normal distribution, and this holds true.

BNB also exhibiting the property of being positively skewed might explain why it could be an especially useful addition to a portfolio that generally consists of negatively skewed assets — helping to bring the overall portfolio skewness closer to 0 and making it more resilient to long-tail withdrawal.

This analysis has added to the research that suggests that adding small amounts of a cryptoasset to a “traditional” portfolio can drastically improve its risk-adjusted returns. In the context of BNB, we showed how its addition to a balanced portfolio can provide substantial diversification benefits, and both tolerance and monthly rebalanced portfolios with a 5% target allocation of BNB outperforms a portfolio without any cryptoasset. Interestingly, over the study period, the BNB portfolio also outperformed the portfolio with target weights of 2.5% respectively, for both BNB and USDT, despite BNB having a relatively lower than average correlation with Bitcoin.

BNB, interestingly, has had positively skewed returns over the last two years, which allows it to function as a means for investors to further hedge against the present downside tail risk, which is particularly pronounced in portfolios composed of negatively skewed assets.

This report was the second part of our series about portfolio management with cryptocurrencies and digital assets.

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