Is the ‘Coin­base Ef­fect’ ex­ag­ger­ated?

AMBCrypto Weekly - - Front Page -

The ‘Coin­base Ef­fect’ seems to have taken the crypto-world by storm once again. The term refers to cryp­tocur­ren­cies in the mar­ket not­ing stun­ning ral­lies af­ter be­ing listed on the San Fran­cisco-based crypto-ex­change, Coin­base. How­ever, is this phe­nom­e­non over­stated?

The most re­cent case used to val­i­date this ef­fect was that of Maker [MKR]. Af­ter Coin­base Pro an­nounced it was list­ing Maker on its plat­form, the to­ken’s on-chain met­rics saw a mas­sive rally, one that saw it surge by more than 40%. The list­ing of Chain­link [LINK] also led to a rally of 45% in just 24-hours.

Coin­base is one of the world’s most pop­u­lar con­sumer-fac­ing cryp­tocur­rency plat­forms. It has suc­cess­fully po­si­tioned it­self as one of the strong­est on­ramps for main­stream crypto-in­vestors. Strictly com­pli­ant with reg­u­la­tions, Coin­base is also one of the most well-funded blockchain com­pa­nies in the United States. So, a mere list­ing an­nounce­ment for any coin would give in­vestors a per­spec­tive of the pro­ject’s le­git­i­macy.

Hence, some sort of mar­ket ef­fect is ex­pected. How­ever, there are other fac­tors at play as well. Ac­cord­ing to the lat­est re­port by CoinMet­rics, the “ex­plo­ration” of coin an­nounce­ments made by the ex­change tend to have less of a di­rect im­pact on the men­tioned crypto-as­set’s value, than ex­pected.

It went on to add that price ac­tions sur­round­ing these events are less sig­nif­i­cant and largely re­lated to the gen­eral mar­ket regime at the time of an­nounce­ment.

For in­stance, Coin­base had an­nounced the ‘ex­plo­ration’ of 31 as­sets for po­ten­tial list­ing dur­ing the bear mar­ket of De­cem­ber 2018. It was found that at that time, the prices were al­ready strug­gling.

The in­crease af­ter the an­nounce­ment was, how­ever, sig­nif­i­cant. While the coins did bot­tom out af­ter a con­sis­tent down­trend even af­ter the Coin­base an­nounce­ment, they bounced back to start a fresh rally, ap­pre­ci­at­ing by nearly 50 % against BTC over a pe­riod of 100 days.

In Au­gust 2019, Coin­base’s sec­ond ex­plo­ration blog had 8 coins. This was the time when Bit­coin was trad­ing be­tween $12k and $8k. While the as­sets did surge, how­ever, these as­sets did bet­ter against alts such as ZEC, XMR, and DOGE, rather than the more pop­u­lar USD, ETH, or BTC bench­marks.

June 2020 an­nounce­ments saw the most sig­nif­i­cant rise in the val­u­a­tions of the coins, with them ap­pre­ci­at­ing by 20%-40% go­ing into the an­nounce­ment and con­tin­u­ing to rise by nearly 20% in the fol­low­ing 10 days. This could also be due to the high sell-offs in midMarch and the swift re­cov­ery as the prices fell.

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