In the past, it used to be a big deal for a cryptocurrency to get listed on Coinbase, since a listing on that exchange usually led to a big rally, which is known as the Coinbase effect. However, according to data aggregated by CoinMetrics, the Coinbase effect is now dead.
CoinMetrics analyzed the market data of 16 cryptocurrencies which were listed on Coinbase and found that the most common result was a 4% increase 10 days after being listed. Considering the volatility of the crypto market, a 4% gain in 10 days cannot even be considered significant, since the crypto market naturally varies by more than 4% all the time.
Further, the average price change from 10 days before a listing to 10 days after a listing was -1%. Literally, on average cryptocurrencies actually slightly declined when they are listed on Coinbase.
Additionally, Coinbase often puts out announcements that they are ‘exploring’ a cryptocurrency and considering adding it to the exchange, and CoinMetrics found that these exploratory announcements had no significant impact on the market prices of the cryptocurrencies being considered.
That being said, were some outliers that did see a legitimate Coinbase effect, including Tezos, Chainlink, and OmiseGo which saw price increases of 50%. Therefore, it is possible for crypto to see a significant rally when it is listed on Coinbase, but it is the exception rather than the rule.
Zooming out, the fact that the Coinbase effect is pretty much dead, and that cryptocurrencies listed on Coinbase usually don’t see a rally anymore, is likely a side effect of altseason being permanently over, and the decline of the altcoin markets in general.
Essentially, crypto users generally buy Bitcoin nowadays, and if they don’t buy Bitcoin they are most likely to buy a major cryptocurrency like Ethereum or Litecoin. Coinbase already lists these major cryptocurrencies, and many more major and non-major cryptos, and therefore customers are already satisfied with the crypto variety on the exchange.
In other words, even if Coinbase adds an altcoin, its users are generally only interested in buying Bitcoin or Ethereum, and will not give a newly listed altcoin consideration.
Indeed, investing in the altcoins that Coinbase has under consideration at this point, such as Siacoin and VeChain is equivalent to investing in a crypto platform. This is much different than investing in Bitcoin, since the future profits of altcoin investments depend on the success of the company or platform behind the altcoin, unlike a Bitcoin investment where the future profits generally depend on the growth of crypto adoption.
Thus, even though Coinbase is the biggest retail exchange in the United States, and listing a crypto on Coinbase should theoretically lead to a spike in demand and a rally, in reality, Coinbase users are not interested in the altcoins that are being listed, and instead, prefer major cryptos like Bitcoin and Ethereum. In a nutshell, this is why the Coinbase effect is dead.
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