Cryptocurrency market participants know the “Coinbase effect”. This is the name for a trend when the price of a cryptocurrency rises after it is added to a certain exchange. Often, a listing by a major platform leads to an immediate rally as this opens up the cryptocurrency to a new audience of investors. The phenomenon is associated primarily with Coinbase, as listings on it usually have the greatest impact on cryptocurrency prices, but this effect is not unique to it. Analyst Roberto Talamas figured out the situation.
The “Coinbase Effect” has become a well-known phenomenon creating a short-term pump in the price of new assets listed.
Does this effect exist in other crypto exchanges?
– Roberto Talamas (@RobertoTalamas) March 31, 2021
The analysis used data from six centralized exchanges:
Coinbase (28 listings)
Binance (22 листинга);
FTX (19 listings);
Gemini (19 listings);
Kraken (11 listings);
OKEx (14 listings).
The calculation was based on the return on investment in the five days after listing. As expected, Coinbase ranks highest with an average return of 91%.
The largest scatter of results is associated with it: from -32% to 645%. Coinbase was heavily influenced by a number of upward-looking numbers, namely District0x and Civic with 645% and 492%, respectively.
But even after their elimination, Coinbase remains the leader with an average return of 29%. In other words, stock listings, especially on Coinbase, are more likely to drive asset prices higher than not.
It is necessary to take into account the conditions in the market when the listings took place. Talamas, in his study, estimates the “abnormal return” of an asset, calculated adjusted for market returns and correlations. This helps eliminate the likelihood of an error due to the fact that the price of bitcoin, for example, increased by 10% per day, and the specified token just went up with it.
Only 14 listings on Coinbase met the criteria. Of these, nine showed statistically significant deviations from normal returns. Four assets grew abnormally after listing, that is, in their case, the effect was long-lasting.
Two assets showed abnormal returns on the day of the announcement only and showed no additional reaction on the day of listing.
Three assets initially showed abnormal returns, but quickly lost them and re-correlated with the market.
Talamas’s analysis shows that of all exchanges, Coinbase listings have the largest impact on cryptocurrency prices. At the same time, listings are reflected differently on different tokens. In other words, without information about a possible announcement or a bot that would allow you to quickly purchase an asset after the release of such an announcement, a purchase against the background of a listing does not guarantee income, and in some cases it may even turn into a loss.
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