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What is The Coinbase Effect? How a successful trader diversifies

BITSTAMP:BTCUSD   Bitcoin / U.S. Dollar
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The “Coinbase effect” refers to the notion that up-and-coming cryptos go through massive rallies during listing on the Coinbase exchange. Some cite the reason behind is the fact that Coinbase is a listed company, and it has some strict regulatory requirements for a coin to be listed on the exchange. However, we do not have any substantial evidence to support or refute the hypothesis.

A lot of hype has been doing the rounds since ADA was listed on Coinbase in 2020. Several research firms jumped in to find the connection. Today, we try to find out whether this effect is still in place and what happened to some of the cryptos that got listed on the exchange.

As per an analysis by the FXStreet, out of 18 of the most hyped coins of 2020 that got listed on Coinbase, only 6 of them went higher after the listing. According to research firm Messari, the returns have an expansive range of -32% to +645% after listing on CB .

The above stats feel such a bummer. Doesn’t it? However, the effect is very much there and alive. The research firm Messari, also adds that on an average, there is a gain of 91% within the first five days of listing.

Some of those tokens that shot up last year that have been covered in this analysis were:
  • district0x or DNT: It shot up almost 800% following the CB listing.

  • Civic or CVC: It went up almost 592%

  • Decentraland or MANA: This token had a relatively muted movement as it shot up approximately 60%

We wondered whether this effect was active in August 2021. We will conclude with the entire findings below. But first, let us list a few coins that demonstrated the same effect this year.

  • IoTex or IOTX was listed on the Coinbase platform on 12th Aug, 2021. It shot up 396.19% in the week leading to the listing.

  • Axie Infinity or AXS was also listed on 12th Aug, 2021. This gaming token had a relatively lesser jump as it shot up 55%

  • Chiliz or CHZ was listed on 17th June. It jumped 70% leading to the listing and then fell soon after as investors rushed to book profits.

Conclusion:
  • The Coinbase Effect is still active. Although not all coins go up prior to the listing, a little diversification and small allocation to different cryptos present a good risk:reward ratio.
  • A good majority of the coins that have been doing fairly decent prior to the listing, do even better after the listing.
  • Coins performing badly lately amplify their momentum in the negative territory.
  • Projects that are genuinely good and ambitious, and that have been in sideways territory for sometime do pretty well after the listing.

Please note that this analysis is by no means an exhaustive list. It covers only a handful of the tokens, and attempts to highlight a prudent trading decision in terms of risk:reward. Listing gains are alluring, and should never put in more than they could afford to lose. In all likelihood, it’s always best to do your own research.

One should always diversify the portfolio, and only invest a smaller amount at such speculative bets. Every trader is bound to have losses and gains. Any traders that wins more than she loses, ultimately becomes a successful trader in the long run.


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