The Coinbase Effect: How the Listing of a New Coin Can Bring 35-Percent Profit to Traders.
On October 11, Coinbase Pro, owned by the American cryptocurrency trading platform Coinbase, announced the start of support for the new ZRX token of the 0x decentralized exchange protocol. As a result of the so-called "Coinbase effect," the price of the token soared by 40 percent. This growth was predictable, as the Coinbase Exchange is one of the largest in terms of trading volume, and its value is estimated at $8 billion. Another noteworthy aspect is that the growth rate of the ZRX began shortly before the official listing announcement.
According to Coindesk, the ZRX started its rally on other exchanges a few minutes before the official announcement from Coinbase at 17:00 UTC. Insider trading could have been the cause, especially considering that in March of this year, two collective lawsuits were filed against the exchange, one of which accused Coinbase employees of insider trading in listing Bitcoin Cash. According to the authors Coindesk, however, a more plausible explanation may be the timely launch of trade by cryptobots.
According to this version, enterprising traders had set up their trading bots in advance to buy the new token. Trading bots are software which, in most cases, works directly with crypto exchanges through their program interface (API). The purpose of bots is to fully or partially automate the work of a trader. To do this, they analyze the state of the market and, based on the information received and the strategy embedded in the bot, form trading recommendations, or automatically make transactions with cryptocurrencies. To automate trade, traders can use the following types of bots:
Trading bots make decisions about buying or selling cryptocurrencies based on market analysis. In most cases, the task of such bots is to buy cryptocurrencies at a low price and sell at a higher price.
Arbitrage bots monitor changes in cryptocurrency quotations on various trading platforms and automatically make transactions to make a profit from the price differences.
Order bots automatically make transactions with assets when certain market conditions occur, which are pre-programmed into the bot code. To do this, they follow the trends in the market and make the same transactions as most traders.
Signal bots analyze forecasts from various information channels and, based on the analysis, give recommendations in the form of trading signals, or send traders reports on market changes.
Script bots are presented in the form of basic software, on the basis of which the trader can independently configure the bot's work. They are used by experienced traders who know the intricacies of trading on the crypto market.
HOW LISTING ZRX BROUGHT PROFIT TO TRADERS.
In the case of the ZRX listing, the bots that work with the Coinbase Pro API were set up to notice and react to the addition of new coins to the exchange server. They sent signals about this to traders through social networks. For example, the “Lighting Signals bot” informed their followers about the addition of ZRX via Twitter.
According to Coindesk, the ZRX started its rally on other exchanges a few minutes before the official announcement from Coinbase at 17:00 UTC. Insider trading could have been the cause, especially considering that in March of this year, two collective lawsuits were filed against the exchange, one of which accused Coinbase employees of insider trading in listing Bitcoin Cash. According to the authors Coindesk, however, a more plausible explanation may be the timely launch of trade by cryptobots.
According to this version, enterprising traders had set up their trading bots in advance to buy the new token. Trading bots are software which, in most cases, works directly with crypto exchanges through their program interface (API). The purpose of bots is to fully or partially automate the work of a trader. To do this, they analyze the state of the market and, based on the information received and the strategy embedded in the bot, form trading recommendations, or automatically make transactions with cryptocurrencies. To automate trade, traders can use the following types of bots:
Trading bots make decisions about buying or selling cryptocurrencies based on market analysis. In most cases, the task of such bots is to buy cryptocurrencies at a low price and sell at a higher price.
Arbitrage bots monitor changes in cryptocurrency quotations on various trading platforms and automatically make transactions to make a profit from the price differences.
Order bots automatically make transactions with assets when certain market conditions occur, which are pre-programmed into the bot code. To do this, they follow the trends in the market and make the same transactions as most traders.
Signal bots analyze forecasts from various information channels and, based on the analysis, give recommendations in the form of trading signals, or send traders reports on market changes.
Script bots are presented in the form of basic software, on the basis of which the trader can independently configure the bot's work. They are used by experienced traders who know the intricacies of trading on the crypto market.
How Listing ZRX Brought Profit to Traders
In the case of the ZRX listing, the bots that work with the Coinbase Pro API were set up to notice and react to the addition of new coins to the exchange server. They sent signals about this to traders through social networks. For example, the “Lighting Signals bot” informed their followers about the addition of ZRX via Twitter.
According to Coindesk, the cryptobots started sending signals about the addition of ZRX as of 16:56 UTC. According to the cryptocurrency trader Johnny Mo, such signals received from bots are a significant advantage for the trader, especially in comparison with the players who trade without their help:
“While the trader engaged in manual trading sees a new addition through the API, logs into his account at the crypto exchange, having previously passed two-factor authentication, and goes to the page of the coin he is interested in to place a buy order, the price of the token will be higher due to the activity of the bots, who managed to make their purchases earlier.”
It is unlikely that Lighting Signals was the only bot that informed its users about the listing of a new digital asset. Those traders who received a signal from this bot and purchased the ZRX in a timely manner, however, did it at a price 15 percent lower than the one that was available to the rest of the market players.
This chart shows that the price increase for a pair of ZRXUSD began on the Binance crypto exchange at 16:56 UTC (time of the first signal). As a result, the price for a new token increased by $0.09 in four minutes, and by the time of the official start of sales on Coinbase Pro, one ZRX token was $0.77. By 17:09 UTC, the ZRX price had risen to $0.91, marking its daily maximum.
Thus, thanks to the signals from Lightning Signals, traders had the opportunity to receive a 35 percent profit from trading ZRXUSD. At the same time, the rest of the market players who joined the trade immediately after the official announcement had to be content with 18 percent of the profit.
BOTS AND THE CRYPTO MARKET
Unlike traditional financial markets, where bots are primarily used by brokers with DMA (direct access to the market), any trader can use automated trading tools when trading cryptocurrencies.
A well-tuned bot not only saves the time of its user but also protects them from the constant stress associated with trading such volatile assets like cryptocurrency. Moreover, with the help of bots, you can work with several sites at once, as well as test the effectiveness of your trading strategies using the backtesting function testing strategies in the previous period of time.
But not all players resort to the services of trading bots. A crypto trader known as Cryptohustle explained that his bots help in gathering information about the state of the market, but he does the trading himself:
"These bots collect additional information for me, but I never build my trading strategies, relying on their activities."
According to others, today, the bots' algorithms do not allow them to conduct a fundamental analysis better than a person:
“I do not use bots, because for me this is not necessary. I am looking for projects that have a clear roadmap, realistic goals, proper guidance and understanding of the technology/industry in which they are trying to occupy a place,” as concluded by the trader under the pseudonym Truthraider.
It should also be borne in mind that any trader faces potential risks by providing access to their own funds. According to experts, working with trading bots on the crypto market, a trader may face problems associated with defective software, instantaneous collapse of cryptocurrency quotes, and fraud cases.
And yet it is impossible to deny the fact that bots have become an integral part of the crypto world, helping traders implement their trading strategies in one degree or another. And in the case of ZRX listing, it was thanks to bots that some traders were able to double their income without resorting to insider trading, but using the tools available to them.
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