The Binance Listing Effect: Real and Imagined

The Binance Listing Effect: Real and Imagined

It is the world’s number one cryptocurrency exchange, and in the eight short months of its existence it is, according to at least one report, already registering over $200m in net profit per calendar quarter – a figure that is set for continued exponential growth over the short-term, at the very least.  

And with a token price that sold for $0.10 at ICO and which is now trading at just under $15 at the time of writing, it is a success story that has also made its founder, 41 year-old Chinese Canadian Changpeng Zhao, a dollar billionaire

Solid and Simple Service

To understand why Binance has been so successful is not a difficult exercise. For one things, users like it. They do so because Binance ‘just works’ ; it does the simple things well. That is something which, for one reason or another, many – if not most – exchanges appear to struggle with.

Binance also offers an intuitive interface which it follows up with superior client service in the rare cases where things do go wrong. At the same time, however, this does not and cannot explain its success entirely. To do also requires understanding why even high profile ICOs WePower are prepared to pay what is thought to be up to $1m USD for listing a simple trading pair. 

The explanation boils down to a phenomenon that goes by the name of the Binance Effect. 

A case in point is Binance’s listing of the Golem token twelve hours of ago (as of writing) which saw GNT jump from a pre-Binance listing price of just under $0.55 to a peak of $0.71 in the hours which followed. The price has since settled back to around the $0.60 mark, but if the legend of the Binance Effect is anything to go by, it should also steadily increase over the next few days.  

PIVX, IOST, Steem and INS are all examples of coins which have experienced similar effects. And whilst the effect can usually be witnessed on any of the other major exchanges such as Bittrex, there are studies which demonstrate that Binance’s own impact on the post-listing price is much more pronounced. 

“Binance Listing Confers Credibility”

Where that observation can be challenged, however, is under extreme market conditions. Q1 of 2018 was the worst quarter on record for the cryptocurrency investor universe, and even high profile ICOs such as WePower and Zilliqa which listed on Binance over this period continued to suffer major falls. 

The Binance Effect, however, appears to dissipate over the longer-term, according to some analysts – “take the performance of Binance-listed coins over the long-term as an aggregate against the universe of non-Binance coins taken as an aggregate, and you’ll find no difference that can be slated as statistically significant.” Those are the claims of ‘crypto-pi’, a crypto market researcher and investor, who has based his figures on a weighted average of historic market price closes sourced from CoinMarketCap.

Whilst crypto-pi refused to share his research methodology with us, ICOExaminer has commissioned its own study, the results of which will be published in the next few weeks.  

“Most ICO project teams are aware of long-term null-effect of Binance but still prefer to go down the route of a Binance listing for one other significant reason – an entirely psychological one,” adds crypto-pi. “Binance is seen to confer credibility, legitimacy even, on a project.”

The irony is that, according to Binance’s own terms and conditions, a listing of a coin should not be deemed as anything of the sort. But what Binance thinks of the market and what the market thinks of Binance are, of course, two different things.