The Coinbase Effect is a trend where the price of a cryptocurrency rises after it is added to a specific exchange. Often, a listing by a major platform leads to an immediate skyrocketing rate as it opens up the cryptocurrency to a new audience of investors. The phenomenon is associated primarily with Coinbase, as listings on it usually have the strongest impact on cryptocurrency prices, but this effect is not unique to it. Analyst Roberto Talamas figured out in the situation.
The analysis used data from six centralized exchanges:
The calculation was based on the return on investment 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 consider the conditions in the market when the listings took place. Talamas estimates the “abnormal return” of an asset, 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-term.
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 greatest 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 acquire 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.