A token listing process, and the connection to the platform can act as something of a golden ticket for a digital asset, making it part of a very exclusive, desirable club.
When Coinbase integrated Litecoin into its trading systems in early May of 2017, for example, it triggered an immediate surge in the transaction volume and price of LTC. From trading at $24.20 (Index) on May 4th, its price rose to $48.40 on June 18th, a 98.43% jump in less than 6 weeks.
The listing was additionally significant because it came after Litecoin integrated the Segregated witness(SegWit) protocol into LTC transactions. The upgrade allowed for a creative method to increase transaction capacity on the network, while retaining 1MB block sizes.
However, the decision to use it was controversial among members of the Litecoin mining community and there was a great deal of back and forth before the Segwit implementation. Coinbase choosing to list Litecoin after had transitioned the network to allow for Segwit transactions, was likely perceived as a substantiated endorsement for this network scaling option.
An additional factor was likely that Litecoin’s founder, Charlie Lee, was also the director of engineering at Coinbase at the time of the listing. While this does appear to be a conflict of interest, one could argue that a network’s founder is likely to have some of the strongest understanding of its respective pros and cons.
Another recent benefactor of this ‘Coinbase effect’ has been the Ethereum classic token. Since the initial announcement that Coinbase would be adding ETC to the platform, its price has risen from $12.65 to $16.53, a percentage increase of ~ 30%. Conversely, over the same period direct competitor ETH, fell by ~10%.
The price rise can be put down predominantly to speculation. The ETC token is yet to be added to the platform, in fact, a listing date has not yet been announced. The jump has likely driven by short term FOMO buyers, speculating on a potential influx of institutional and casual purchasers entering ETC markets via avenues like the Coinbase broker and custodial services. This means there could be a potential dump once the token actually begins trading on Coinbase Pro, if there is no immediate influx of liquidity from mainstream buyers.
We have seen similar speculative jumps in other tokens which Coinbase has declared an interest in. Stellar Lumens (XLM), 0x (ZRX), BAT, Zcash (ZEC) and Cardano (ADA) tokens have all performed well in recently thanks to the implications of what a Coinbase trading option brings. Prudent Investors should put credence to the idea that many new buyers are not particularly interested in any fundamental or technological factors underlying these projects, and are likely to quickly sell off any newly acquired tokens if there is a reversal in the current positive sentiment.
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