Watch out for the Little Cryptocurrency Exchanges That Could
A cryptocurrency getting listed on an exchange such as Binance or Bittrex usually means a sudden meteoric spike in price. Even the mere news of an exchange listing, whether true or false, contributed to massive increases in price, Ripple (XRP) being a prime model in the early months of 2018.
The Case of IOTA
Take a look at IOTA, for instance. Listed at nearly 15 exchanges, IOTA has achieved a liquidity not many tokens have. At the time of its listing on Cobinhood, a comparable new zero-trading fee exchange with relatively low volume, IOTA’s price jumped from $1.86 to $2.58 in two days following the April 30th news – an increase of nearly 40%. IOTA’s market cap went from around $5.2B to $7.2B,
The price increase shouldn’t be surprising, but the fact that an exchange with a daily volume of around $38,000,000 was able to spike a token’s price by 40% just by listing it shows something.
Binance, one of the largest exchanges, has a trading volume of $1,691,897,268 and is known to launch a few coins into the market cap stratosphere. Most recently, Binance listed Augur and the price jumped from $47.15 to $81.95, a near 85% leap. Augur’s marketcap went from $490M to around $900M.
Now, let’s take the above examples of Cobinhood/IOTA and Binance/Augur, and we start to see something interesting.
First, let’s assume that the primary value-add of a coin getting listed is that investors/traders get access to a larger pool of liquidity and trading volume. This increases the usability of the token and generally helps stabilize the price further (or at least add a theoretical floor to how low the price can drop).
Access to more potential buyers and sellers increases a token’s trading volume, and the forces of an open market are generally more preferable to a situation where token holders can’t liquidate their holdings.
Of course, there’s an element of brand recognition and industrry approval that varies based on exchanges. People will generally see a Coinbase stamp of approval as having more weight than that of a Houbi, but let’s not dive down this rabbit hole (yet).
All other things equal, it would be expected to see some correlation between an exchange’s daily trading volume and how high a token’s price rises immediately upon listing, but we don’t.
Cobinhood’s daily trading volume hovers at around a mere 2.2% of that of Binance, yet its listing helped IOTA gain around $2B in marketcap, whereas Binance’s Augur listing only (if only is the right word to use here) helped add $410M.
Of course, there is a myriad of other effects that influence a token’s sudden surge in price (how certain markets respond to the token, other industry news, etc).
However, if there’s one thing you leave with from this article, it’s to put smaller exchanges on your radar. Cryptocurrency traders and enthusiasts tend to watch exchanges like Coinbase, Bittrex, and Binance like hawks to catch a whiff of potential new token listings, but could be missing out on some serious gains by neglecting to watch up-and-coming exchanges.
Watch out for the little cryptocurrency exchanges that could.
Featured image courtesy of Shutterstock.