A recent study by Ren & Heinrich assesses the implications of Binance’s emergence as the dominant global crypto exchange. The research suggests that individual token listings could now mean they’re attracting much more attention, at least among speculators. According to the research, the ‘Binance Effect’ refers to a price pump for newly listed tokens.
The “Binance Effect” is driving cryptocurrency prices up!
According to an analysis by crypto investor Ren & Heinrich, token prices rose 73% in the first 30 days after they were listed on the crypto exchange Binance. Researchers tracked 26 cryptocurrencies over 18 months. The results report reveals that the cryptocurrencies listed on Binance increased by 41% on the first day and 24% on the third day. Ren & Heinrich’s findings provide evidence of a ‘Binance effect’ that benefits tokens, at least in the short term, and is similar to a similar ‘Coinbase effect’.
The term was first used to describe the price spikes that occurred shortly after it was listed on this popular exchange in 2021. A study by crypto analytics firm Messari in April 2021 found that token listings on Coinbase led to a 91% price increase in the first five days of trading.
Recent research by Ren & Heinrich suggests that Binance’s emergence as the dominant global crypto exchange may mean that individual token listings are now garnering much more attention, at least among speculators. “In most cases, a Binance listing has a positive effect on the price of a cryptocurrency,” Ren & Heinrich says.
A ‘Binance effect’ appears to be a by-product of the exchange’s massive trading volume that far surpasses its competitors. On Thursday, the exchange’s trading volume of about $7.5 billion was roughly three times that of all other exchanges.
Listing drives prices up, but…
Roberto Talamas, head of data science and analytics at crypto data firm Messari, says the overall effect reflects the ‘easy-to-use UX’ of an exchange that provides an easy gateway for crypto-natives and non-crypto-natives to purchase the token. Talamas notes that among major exchanges, only Coinbase listings had a statistically significant impact on price soon after they were relisted in early 2021. He also says that despite this, “as liquidity is more concentrated on the Binance exchange, it is possible that asset listings have a higher impact on price.”
Ren & Heinrich found that the average maximum price 30 days after the token listing was 73% higher than the first Binance listing day.
For example, cryptocoin.comAs you follow, cross-chain bridge protocol Stargate Finance saw the price of its native token STG increase by 152%, from roughly 33 cents to over 80 cents on its first day of listing on August 19, 2022, according to CoinGecko data.
Despite the sudden price increase, Ren & Heinrich says the positive momentum was ‘relatively short-lived’. About two weeks later, it reveals that almost half of all cryptocurrencies analyzed have lost their gains. The analysis also notes that coins listed in the last bull market outperformed coins listed in the ongoing bear market.
Binance effect and Coinbase effect
Messari’s Talamas attributes the Binance pump to the same easy ‘accessibility’ that provides the ‘Coinbase effect’ for retail traders. In this context, Talamas makes the following assessment:
There is an argument to be made that if Binance manages to seize users and funds from other centralized exchanges, and their liquidity and users increase, the greater the impact the new listings will have on prices.
Grzegorz Drozdz, market analyst at financial services firm Conotoxia, estimates that around two-thirds of all newly released tokens in 2022 have increased in price on Binance. For example, the price of Optimism (OP) skyrocketed by more than 300% shortly after Binance listing. “We can expect a greater upside reaction in 2023 after Binance is listed, confirming the shift from the ‘Coinbase effect’ to the ‘Binance effect’,” adds Drozdz.