The Coinbase Effect: Three Simple Ways to Trade the Catalyst

When it comes to trading cryptocurrencies, never chase Coinbase-listing momentum.

Considering that a listing on Coinbase results in increased levels of adoption, it only makes sense that ETC moved higher leading up to the listing. In fact, with Coinbase regarded as one of the most respected firms, no wonder additions are held in such high regard.

However, once the news is priced into the cryptocurrency, pullbacks are common.

For example, in recent weeks, the Basic Attention Token (BAT) ran from a low of $0.2467 to a high of $0.38. All on news, Coinbase would list the coin on its platform.

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Shortly after, BAT fell from $0.38 to $0.24.

We saw the same thing happen to the 0x (ZRX) coin.  It ran from $0.4606 to $1.07.  All on the Coinbase effect. Once the news was priced in, the coin fell to $0.6884.

The same thing happened with Ethereum Classic (ETC).  The coin ran to a high of $20.67 on Coinbase news, and pulled back to $9.20 in November 2018. In short, Coinbase is a powerful catalyst to be aware of prior to actual listing. Once the coin is listed, news is priced in, and down comes your coin.

Three Phases of the Coinbase News Cycle

Anticipation of News Effect

Stand at the top of a snowy hill with a small snowball.

Now, begin to roll it down the hill. As you do, it begins to become bigger and bigger. It begins to build momentum. The same thing began to happen with coins on the anticipatory news effect.

If we can spot a potential story ahead of the herd, we can take a position and wait. We can get a jumpstart with our snowball. Then, as they begin to wake up to opportunity, our snowball gets bigger and bigger and picks up momentum. This happened with the Basic Attention Token (BAT) as rumors began that it would list on Coinbase.

To profit from anticipation, we need to spot news early prior to listing.

Dissemination of News — Stone in Pond Effect

We’re often told that news is immediately priced into a stock upon release.

But that theory is old, and false especially with information friction thanks to the Internet. As news goes from local to regional to national to global, until that wave of news dies off, the impact is not immediately priced in. Throw a stone in a pond. Notice the ripple. That’s how new dissemination works until the ripples fade and die into nothing. This also happened with the Basic Attention Token (BAT), Ethereum Classic (ETC) and 0x (ZRX).

Basic Attention Token: Death of News Cycle

Remember how marijuana stocks exploded on Canada’s news of legalization?

When the news began to fade and die, so did related stocks. The same thing happens with cryptocurrencies.  The pullback in BAT for example, is something that should have been expected all along. 

Not because it’s a weak coin, but because this is how news and the market work.

Keep these pointers in mind the next time you want to trade the Coinbase Effect.

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