Exchange Tokens: Neither a Great Investment Nor a Great Market Indicator

Unlike air miles, exchange tokens trade freely on a variety of venues.

The table below shows the one-, three-, six-, nine- and 12-month returns of Binance's BNB, Huobi's HT, Bitfinex's LEO and OKEx's OKB, the four exchange tokens that make up the exchange token index provided by FTX, a derivatives exchange operator, as of Jan. 28.The benefits to traders can be significant.

According to Binance's fee schedule, the top tier of BNB token holders must today hold about $176,000 worth of the token and trade about $1.2 billion per month on the exchange.

They also provide access to "Initial exchange offerings", a new asset issuance operated by the exchange.

BNB and other exchange tokens might be expected to serve as indicators as to the relative success of the issuing exchanges.

For most of these exchange tokens, the correlation between price and the issuing exchanges' reported volume is weakening over time.

Even as a more general metric, providing an indicator of the broad demand for crypto assets as a speculative investment, exchange tokens are a weak signal.

At the same time as their prices have drifted from the reported volume of their parent exchanges, exchange tokens' daily returns have hewed more closely to those of bitcoin itself.

For now, exchange tokens appear to be just another flavor of that volatility.

Their price movements don't yet support thinking of exchange tokens as a meaningful innovation in use or ownership.