Coin Metrics Debunks the Efficacy of the ‘Coinbase Effect’

Coin Metrics, one of the top data and analytics platforms in the crypto space, has recently rebuffed one of the industry’s fables. Earlier this week, the company published a report that criticized the famous “Coinbase Effect” – a name that many have given to the euphoria caused by a new listing on Coinbase Pro. 

A Fad That Doesn’t Work

Coin Metrics’ report examined the effect that Coinbase Pro listings have on assets. Many have pointed to this being a significant deal, since Coinbase is one of the world’s top exchanges, and arguably the biggest in the United States. Listing on Coinbase is something that every digital asset manufacturer craves, as they believe that they can benefit from the Coinbase Effect too.

However, Coin Metrics believes that this effect is overhyped. As the report showed, new Coinbase markets typically post average and median price performances in the range of -1 percent and 14 percent against the dollar, Bitcoin, and Ether. This performance runs between ten days before and ten days after the listing. 

The analysis company also looked into Coinbase announcements’ impacts on markets that are under consideration for listing. Per the report, Coin Metrics discovered that these events couldn’t produce any significant changes in market activity.

Despite the Coinbase Effect’s perceived overhype, Coin Metrics found that some assets have been exceptions to the rule. These include Tezos, OmiseGo, and Chainlink – all of which posted returns over 50 percent. Still, the rule followed through for most assets.

In fact, six of the sixteen digital assets that the Coinbase listed showed negative price performances after ten days of listing. Another three posted gains less than 5 percent. In general, the most common price performance after ten days of listing has been a 4 percent gain.

COMP Could Prove the Point Again

A similar trend was recently discovered with the Compound Governance Token (COMP), the digital token developed by leading decentralized finance (DeFi) protocol Compound. The asset got listed on Coinbase Pro on Tuesday and immediately saw a price hike.

News of the Coinbase Pro listing had driven the asset’s price more than double in a few days. COMP had been trading in the $140 to $180 range prior, but it shot up to $380 after the news came out. 

On the first day of trading, however, COMP went even higher – as high as $427. Sadly, the asset fell back to $250 within 8 hours of the high. Analyses show that less than 25 percent of the entire COMP supply is still circulating. So, this thin volume had driven the price swings. However, the decline is still noticeable. 

It’s worth noting that COMP still accounts for 36.5 percent of the total DeFi market capitalization. Data from tracking site DeFiMarketCap shows that it has a cap of about $2.3 billion. 

However, the asset’s price has continued to drop steadily. At press time, DeFiMarketCap shows that it’s selling for $228 per token, marking a 23 percent loss over the past 24 hours. If the slump continues to run, then it would only go to show that Coin Metrics’ report was right about the Coinbase Effect.