The "Coinbase Effect"
Can We Quantify the Coinbase Effect?
I think we all know that there is some sort of clear correlation between token price, availability, and accessibility that makes up the "Coinbase effect."
For those of us interested in this type of economic impact given the infancy stage of the cryptocurrency economy, I would love to see comments and suggestions for ways to adequately model, predict, and eventually fully quantify this effect.
I'm considering this the beginning of my research. If you know someone who has already done this, please link the article!
Thanks!
Yeah I like to think of it as the "Fiat Gateway" effect. When you're asking about this effect, what kind of economic impact are you referring to? Are you trying to quantify the capital inflow driven by sites like coinbase? and perhaps where this capital trickles down to, like into other alt coins.. which eventually grows the entire crypto space? I think it would definitely be something I'd enjoy reading about.
HI! Thanks for the comment! I agree it is a "Fiat Gateway" effect, but it feels like Coinbase has a pretty large "market share" given i don't have a better term. To be honest, I'm interested in the effect on both a macro and micro basis. Regarding capital inflow, I'd be interested in how the introduction of a token affects capital inflow ( would think it actually increases capital in flow, rather than just diversifying whats already there) and I would be interested in both the % and timing for flow into other assets. Additionally, i would be interested in how the price of a currency affects the introduction. I'm a firm believer that currencies like Ripple and Litecoin had large swings due solely because the populous was able to buy multiple coins rathe than a small piece.
Of course, I'm also interested in understanding how introduction of a coin into a fiat gateway like coinbase, especially for coinbase specifically, affects the total cryptomarketcap in general.
Geez, in explaining this and answering your questions, I'm realizing there could be an entire whitepaper on the potential effects and what is possible, just asking the questions....
Absolutely. I actually wrote an article about how coins with low nominal value, ie ripple, cardano, etc, experienced the largest % returns the past week. Now since Litecoin is inching towards $300, it hasn't been able to experience the same network effect from the people looking to getting in on low (nominally) priced coins, but I totally get what you mean.
Hey, that's exactly how problems are identified and eventually solved. By kicking the can and having some conversation, haha. You know what's interesting is that since everything is on the blockchain, you could theoretically track down how capital from new ETH, BTC, LTC addresses (likely from fiat gateways) disseminate/flows into other coins, whether pumps n dumps in certain coins basically act as a lever for buying more secure coins like ETH or BTC. That would be quite the read!
Also! The other macro economic factor I've thought about in the past is inflation driven by crypto currencies. With regular fiat, we experience inflation when more money is printed because fiat is 100% liquid and the quantity circulated can affect the price of what goods/services can command.
While cryptos can technically buy goods/services, there aren't enough enterprises which readily accept crypto currencies to affect inflation that much. As it stands, crypto is a pretty illiquid asset and volatile at that! So what I wan't to know, as the crypto space develops, prices normalize, and enterprises begin opening their payment portals to a cryptocurrency option, how will this affect worldwide CPI? What affect will airdrops, forks, and ICO's have on inflation as well?
This was definitely already on my list. For instance Overstock.com selects to allow bitcoin, and Overstock's value goes up. However, what does the value of BTC (the accepted currency) do, and then what about the ripple effects on cryptocurrency as a whole. Is this exponential decay function, or perhaps logarthimic and you take steps away from bitcoin. Maybe it is a step function.
I need a mathematician.
I LOVE THIS IDEA! I'll get through the process faster as soon as i can bank enough to quit my day job.... wah wahhh. Still, Going to pursue. Thanks @orangesphere
You can look at trading volume on coinbmarke cap for each of the pairs. Perhaps you could look at how much share the new coins took of total money flowing through Coinbase. Then you could assume a new coin would make a smaller share. Then you have dollars flowing into the alt. Look at the money flowing in as pct of trading volume and I bet that’s a decent proxy for the price impact. —- it would be a good analysis
You really should write something on this up. I’ll help if you want.
Thanks @ender! I will. The day-job keeps getting in the way.....
Awsome topic! I think a great example of the "Coinbase effect" comes as a rumer that Ripple might be listed with them and the price jacks up and then when that rumer is reported to be false comes the crash. It seems to me that they have too much power and I for one am looking forward to them having a little competition in the US market for being the most legitimate Exchange. Competition will bring about more equinimity imo and maybe it will help lower their ginormous fees as well.
I would completely agree with you on token rumors. Anytime there is a hint of a token getting added to Coinbase, there is a noticeable jump in price. The competition is out there, but yes, it does seem CB has the lion's share in US crypto. However, I think this might be changing, and we could consider the crypto - internet analagy here. It seems apt to say that CB functions as an "AOL" or maybe "Netscape." They may be the pioneers, but its hard to stay on top.
Very interesting topic! Please share your results. I'd be surprised if there is no one who has broached this at all though. Surely someone out there has some starting work?