What is the Binance Effect?
The Binance Effect is a phenomenon where the price of a coin jumps significantly after getting listed on Binance.
Binance, launched in 2017, has quickly grown to become one of the world’s most popular cryptocurrency exchanges. On some days, Binance is the world’s highest-volume exchange. Today, it rarely drops out of the top 5 or top 10 exchanges by trading volume.
After Binance listed a few coins, people started to notice something: getting listed on Binance would typically lead to a rapid increase in the price of a coin. This became known as “The Binance Effect”.
Obviously, it’s no surprise that getting listed on one of the world’s highest-volume exchanges would lead to a boost in the price of a coin. It shows that a coin is legitimate (or has paid the listing fee). It also opens the coin to a wider range of traders. A coin might go from being available exclusively on a niche exchange, for example, to being available to millions of traders overnight.
But does the Binance effect last? Is the price boost caused by the Binance effect just hype? Should you buy early and sell within a few days? Let’s take a closer look at the data behind the Binance effect.
All Cryptocurrencies Increase in Value the Day of the Binance Listing
Our friends at AstralCrypto.com decided to investigate the Binance effect. They looked at 15 cryptocurrencies before and after being listed on Binance. The results provide one of the best looks into how the Binance effect works:
- The average maximum profit potential from Binance listings is 109%; in other words, if you bought before the announcement and sold at the peak of the hype following the listing, you could double your money, on average, across all 15 coins
- The average percentage price change from a week before the Binance listing to a week after the Binance listing is 32%
- All 15 cryptocurrencies analyzed in the study increased in value on the day of the Binance listing (relative to the day before the Binance listing)
- 13 of the 15 cryptocurrencies decreased in value on the day after the Binance listing
- Traders can maximize their profits by buying before the Binance listing and selling on the same day of the Binance listing
- 8 of the 15 cryptocurrencies maintained an increase in value from a week before the Binance listing to a week after the listing
- 7 of the 15 cryptocurrencies decreased in value from a week before the Binance listing to a week after the Binance listing
Some of these results can be attributed to market sentiment. If the price of bitcoin was rising over the two week period surrounding the Binance listing, then the price of a coin was expected to rise because most coins were rising in value.
You can view the complete study here. It’s one of the best analyses of the Binance effect online.
Reasons for the Binance Effect
Most coins will experience a significant boost in price after being listed on Binance. Of those 15 coins, approximately half will retain their value in the days following the listing, while the other half will drop in price.
Why does the Binance effect occur? Here are some of the reasons.
It Shows Credibility
You might hear about a promising altcoin. It’s backed by good technology and a solid team. You decide to buy a few tokens. Unfortunately, the coin is only available for trading on a single exchange – and you’ve never heard of that exchange. Your view of that coin drops. You thought it could be the next bitcoin, but now it’s just a random altcoin on a random exchange.
Now, picture this with Binance. You decide to buy an altcoin. You see it’s listed on Binance. You already have a Binance profile, or you’re more willing to sign up for one. You see the altcoin listed on Binance. It confirms your view that it’s a good coin. You decide to buy.
It Makes It Easier for Anyone to Buy
Binance is a top 5 cryptocurrency exchange by trading volume. When a coin gets listed on that exchange, it immediately opens that exchange to thousands of reputable traders. These traders can purchase the coin with a single click. Binance makes it easier for anyone to buy an asset, and that’s why the price can be expected to increase.
It’s a Self-Fulfilling Prophecy
Many price movements in the crypto markets are fueled by hype. That’s why the Binance effect can also be seen as a self-fulfilling prophecy. You might see a coin that’s about to get listed on Binance. You buy the coin today because you’re aware of the Binance effect. Thousands of others buy the coin for the same reason. The coin goes up in value because so many speculators are buying it, and then drops when all the speculators try to make a quick profit. It’s a self-fulfilling prophecy.
The Binance Effect in Conclusion
Overall, the Binance effect can be expected to dissipate over the longer term. Studies have shown that coins experience a significant boost the day they’re listed on Binance, although the price drops down over time as the hype disappears. Nevertheless, good coins will always retain their value. It’s important to judge a coin not just on the Binance listing, but on all other aspects of the coin as well. It's no doubt that the winner of this months ‘7th Round Community Coin of the Month‘ will see the Binance Effect.