Author: Biupa-TZC Source: X, @biupa

As the market gradually cooled down, Binance today announced that MGX had invested in Binance. Based on the objective fact that Binance sold a large number of crypto assets in January, I analyzed the possible investment logic of MGX, the motivation for Binance to reduce its holdings, and the market impact, hoping to provide a logical explanation for a series of events.

1. Valuation of Minority Investment

When I was working in a foreign investment bank, I participated in a Minority Stake Investment Deal. In the transaction at that time, the buyer was a European pension asset management institution, the seller was a company, and our bank served as the Buyside Advisory. In such investment transactions, the buyer needs to determine the valuation of the target company, so a complex valuation model is usually constructed.

We used an Excel model with dozens of worksheets (Tabs) to perform valuation calculations to ensure that the transaction price is reasonable. Since the buyer wants to buy at a low price and the seller wants to sell at a high price, the two sides usually need to conduct multiple rounds of negotiations to reach an agreed transaction price. From the perspective of investment logic, the process of MGX investing in Binance Minority Equity is likely to be similar. In transactions, MGX needs to model Binance's valuation and negotiate with Binance on valuation and investment conditions.

Trading consideration/valuation will be the core issue of the entire transaction. If the buyer can lower the price, it can increase the return on investment (IRR/MOIC); if the seller can raise the price, it can increase its own profits, and the two conflicts of interests. This is also the origin of the Binance sale in January.

2. MGX's background and investment methods

MGX is an investment platform jointly established by Abu Dhabi sovereign wealth fund Mubadala and technology group G42. It has the attributes of a semi-sovereign fund. Mubadala is known for its high salary. Most of its staff come from foreign investment banks in Europe/Hong Kong/USA, and some have also switched jobs from private equity funds (Mega Fund). Therefore, the team is extremely professional.

According to the conventional process of private equity investment (PE), MGX will also conduct detailed valuations before investing in Binance.

The final transaction consideration was not disclosed to the public, only the investment banks, lawyers, and auditors related to the transactionOnly then can you see the specific data if you wait for a professional institution. Commonly used calculation methods may include P/E, EV/EBITDA, EV/AUM, etc. Here we can refer to how American sell-side analysts value Coinbase, which has a similar logic.

3. Binance's asset composition and number of share reductions

In the valuation of traditional enterprises, assets mainly refer to fixed assets and will be evaluated by professional institutions (such as JLL, Cushman & Wakefield). As the world's largest crypto trading platform, Binance's asset side not only includes fixed assets, but also a large number of cryptocurrency holdings.

According to Binance's public Proof of Reserves, its own assets can be calculated by minusing "net customer balance" from "Binance Wallet Balance". On January 1, 2025: Binance holds approximately 50,000 BTC, 3 billion USDT, 220,000 ETH, 6 million BNB, 450,000 SOL, 70 million FDUSD, 100 million XRP, 700 million USDC, etc.

February 1: Binance holds approximately 2700 BTC, 270 million USDT, 150 ETH, 5 million BNB, 4000 SOL, 30 million FDUSD, 90 million XRP, 1.3 billion USDC, etc.

From the data, Binance significantly reduced its holdings in January: 50,000 BTC (about $5 billion), 220,000 ETH (about $700 million), 1 million BNB (about $600 million), 450,000 SOL (about $100 million)

USDT decreased by 2.7 billion, USDC increased by 1.3 billion, and a total net reduction of stablecoin was US$1.4 billion

A total of about $8 billion in crypto assets was reduced.

4. Possible reasons for Binance's massive share reduction

Binance reduced its holdings of approximately US$8 billion in crypto assets in January, accounting for most of its holdings. I think there are three main possible reasons

Easy to confirm valuation and reduce the impact of price fluctuations

The price of cryptocurrencies fluctuates greatly, with a single-day volatility of up to 5%-10%, and at the same timeThe issue of dynamic discount is obvious. Cleaning up crypto assets before transactions helps reduce valuation uncertainty and makes it easier for both parties to reach consensus.

Matching MGX's investment preferences

As a semi-sovereign fund, MGX's investment may not only pursue financial returns, but is related to Abu Dhabi's investment promotion/strategy. Therefore, MGX is more likely to focus on Binance's core trading business and is not very interested in buying the crypto assets it holds. Binance may proactively divest crypto assets before trading to match MGX's investment preferences.

Old shareholders' dividends

Binance may use part of the cash to dividends for old shareholders by reducing its holdings of crypto assets, so that old shareholders can obtain cash before transactions. MGX can invest in Binance's core business at a lower price, achieving a win-win situation.

5. Market impact analysis

Binance's share reduction behavior had a certain impact on the crypto market in January

BTC: The total net inflow of ETF in January was US$5.25 billion, and the BTC reduced by Binance was worth US$5 billion. The two basically offset the two

ETH: The total net outflow of ETF in January was US$660 million, and Binance reduced its holdings US$700 million, which basically doubled the ETF outflow.

If Binance does not make this round of share reduction, BTC and ETH may close more than 102,500 and 3,300 in January. BTC may also hit ATH prices above 109,000 in January. However, as most altcoins (including ETH) have declined in mid-to-late December, it is still unknown whether the market can reach a new high overall in January without Binance's selling pressure.

My estimate is that without Binance's selling pressure, ETH tends to close green overall in January (at above 3300), but the closing price may be lower than the December opening price of 3700. The counterfeit may also be a slight increase overall compared with December 31, but it is still lower than the high on December 7.

The February decline was mainly due to the uncertainty of tariffs/recession brought about by the Trump administration, which has little to do with Binance's selling pressure.

6. Future Outlook

MGXAfter investment, I think the overall currency market is neutral or favorable. MGX uses stablecoins to invest in Binance, which means that Binance has added new stablecoins on its asset side. These stablecoins may be used to make markets/borrow/repurchase cryptocurrencies, thereby improving the liquidity of the currency circle. If MGX requires Binance to no longer hold cryptocurrencies, it will only operate as a pure exchange, because Binance has almost no cryptocurrencies in its existing assets, this will not have any negative impact on the future market. If Binance sells out just for the convenience of valuation + shareholder dividend demand, there is still a plan to enter cryptocurrency in the future. As the market gradually declines/bottoms in March, it may be bought back as a potential bottom-buying force. This has formed a potential benefit for the bottom-up rebound in the future. As a private enterprise, Binance does not have any obligation to tell us in advance about the currency selling operation in January. This is not just an example of information asymmetry that retail investors are exposed to in this market.

In view of the fact that the situation has happened and the negative news has been completed, the future market is generally more optimistic. As the US stock market falls, it may give us a good opportunity to buy at the bottom. If Binance's stablecoin is in the second half, if it comes to do something, maybe there will be more exciting in the second round of the bull market.