Image courtesy of the Binance Twitter page
- According to new research, Binance becoming a more dominant cryptocurrency exchange worldwide means that its token listings will get more attention among traders.
- Tokens listed on Binance this year are likely to see a higher price spike than last year’s listing, indicating that the ‘Binance Effect’ has replaced the ‘Coinbase Effect’.
A new study by on-chain asset management firm Ren & Heinrich reveals that the token’s price surged by more than 70% within a month of listing on the Binance cryptocurrency exchange. In this study, he monitored a list of 26 coins over the course of a year and a half. According to the report, tokens typically register a 41% increase within 24 hours of being listed on Binance, and a 24% increase by the third day.
Len and Heinrich’s research proves that a token benefits from being listed on Binance in the same way it would if it were listed on Coinbase (known as the Coinbase Effect). Two years ago, the coinbase effect became a buzzword when the token price skyrocketed following its listing on the number one US cryptocurrency exchange.
An April 2021 study by on-chain analytics firm Messari found that the price of tokens listed on Coinbase typically rises by 91% within five days of listing. According to the latest research by Len and Heinrich, Binance is currently the world’s leading cryptocurrency exchange, so tokens listed on the Binance exchange will be of interest to traders.
Main Reasons for Binance Effect
Ren and Heinrich write that “listing on Binance usually has a positive impact on cryptocurrency prices.” The report added that the “Binance Effect” is a side benefit of the huge trading volume, which is the highest among its competitors. As of January 5, 2023, Binance’s trading volume is around $7.5 million, almost three times that of its competitors.
Roberto Talamas, Data Science and Analytics Manager at Messari, believes the friendly user experience (UX) and liquidity of the exchange contribute to the Binance effect. His UX design for Binance makes it easy for both technical and non-technical people to perform cryptocurrency trading on the platform.
Talamas further explained that more liquidity is currently flowing into Binance compared to other exchanges. Therefore, listing a token on the platform has a positive impact on the price of such token. According to him, Coinbase is the only exchange to show that data has had such an impact on the list of tokens.
Meanwhile, a study by Ren and Heinrich found that tokens typically register a 73% increase in price on the 30th day after listing on Binance compared to the first day of listing. The report cited an example of Stargate Finance’s native token (STG) listing on Binance.
On the listing day, the STG price rose from $0.33 to $0.80, up 152%. However, the report added that these price spikes are typically short-lived. About 50% of all cryptocurrencies lose their profits at least 6 weeks after listing. However, the study showed that coins listed in a bull market performed better than coins listed in a bear market.
Is the Binance effect better than the Coinbase effect?
Talamas opined that the main factors contributing to the Binance effect (easier access for retail investors) are the same as those of the Coinbase effect. He added that industry analysts agree that if Binance can attract users and funds from its competitors, the effect could be more severe. The base grows. Grzegorz Droz, a top-level executive at financial services firm Conotoxia, shared similar sentiments with Talamas.
Drozdz estimates that over 65% of the tokens issued on Binance last year saw a significant price increase. For example, the price of Optimism (op) has skyrocketed by more than 300% in a short period of time since he was listed on Binance. He predicted that tokens listed on Binance this year would experience a larger price spike than last year’s listing, indicating that the ‘Binance effect’ has replaced the ‘Coinbase effect’.