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Which Crypto Will Hit The Next Coinbase Jackpot?

By March 31, 2018 No Comments
After what happened with bitcoin cash, Coinbase is being a bit cagey about its next listing. We know it will be an ERC20 token, and we can do some detective work using the company's own stated policies, crypto-chatter, and the regulatory crosswinds as clues to make some high-probability predictions.

After what happened with bitcoin cash, Coinbase is being a bit cagey about its next listing. We know it will be an ERC20 token, and we can do some detective work using the company's own stated policies, crypto-chatter, the regulatory crosswinds and stats on other exchanges as clues to make some high-probability predictions.

When BCH Hit The Big Time  

After the community put the kibosh on doubling bitcoin's block size in November 2017, investors started migrating to altcoins like dash and bitcoin cash that had already implemented working scaling solutions to speed up transactions and reduce fees.

Then on Dec. 19th - Kaboom! - bitcoin cash exploded after Coinbase, the largest and fastest-growing entry-level exchange announced it would be listing BCH alongside bitcoin, litecoin, and ethereum as the only 4 coins on its exchange, all with fiat pairs.

Micro-payment cryptocurrency for beginners - when Coinbase, the behemoth entry-level exchange, announced full support for bitcoin cash on Dec. 19th, the price shot up more than 70%.

When Coinbase, the behemoth entry-level exchange, announced full support for bitcoin cash on Dec. 19th, the price shot up more than 70%.

Jumping Through Altcoin Hoops

A coveted listing on Coinbase, a regulated US exchange that has always emphasized trust and ease-of-use, is a green light for novice investors who may suffer from crypto-phobia for offshore, unregulated, complex exchanges that require investors to jump through multiple hoops to get from fiat-in-the-bank to an altcoin asset and back again.

Detective Work

For this very reason, Coinbase has a host of policies and procedures that, along with its announcement last week that it will favor ERC20 tokens, allow us to narrow down the listing possibilities significantly.

Lack of Clarity

In the announcement on its blog, Coinbase cited liquidity and price stability as major factors to be considered.  In light of the SECs recent regulatory scrutiny of ICOs, they are wisely waiting for "regulatory clarity" before listing new tokens on their exchange, GDAX.

That lack of clarity was evident at the last 2 Congressional hearings that addressed the issue.  At a Senate Banking Committee hearing in February, SEC chairman Jay Clayton basically threw all tokens into a single bucket, declaring them securities.

Peter Van Valkenburgh of CoinCenter gives the best-ever explanation of the regulatory distinction between a commodity-token and a security-token

A More Nuanced Approach

A more nuanced approach was evident at the House Financial Services hearing on ICOs in March, where a CoinCenter researcher, a Silicon Valley attorney, a Georgetown Law professor, and the chief risk officer for Coinbase all testified for a regulatory framework that, instead of shoehorning all cryptocurrency into antiquated securities regulations, would recognize the crucial but sometimes subtle differences between commodity tokens and security tokens.

In order to trade instruments that the SEC classifies as securities, an exchange must be a licensed broker, which Coinbase currently is not.  So we can be relatively certain that coinbase is waiting for regulators to clarify their position on the commodity-security distinction before making a decisive commitment on any gray-area tokens.

The ownership stake retained by the team is a minority stake.  There should be a lock-up period and reasonable vesting schedule to ensure the team is economically incentivized to improve the network into the future.

Coinbase's Digital Asset Framework

Fiat-Crypto Pairs

Coinbase's own Digital Asset Framework lists 45 criteria they consider for listing a cryptocurrency.  Ripple and Stellar probably don't qualify because the development team must have a "minority stake", and Dash may be ineligible due to its anonymity features.

The "Global Distribution" category which requires that fiat-crypto trading pairs exist and they are not limited to a single geographic region narrows the field dramatically.  The chart below, from diar.co, lists exchanges with fiat-crypto pairs in the top 20 by trading volume, excluding those that trade the same cryptos as Coinbase.  


ExchangeHQ# of Coinswith fiat
UpbitSouth Korea12535
BithumbSouth Korea1212
KrakenUSA1613
BitstampUK55
CoinoneSouth Korea99

Geo-Diversity & Liquidity

Since only 0.3% of global trading volume occurs off of the top 20 exchanges, it would be safe to assume that coins trading only on other exchanges would be excluded by liquidity concerns.  This is where the geographic diversity requirement comes into play.

Excluding the South Korean exchanges, whether because of regional dominance or potential regulatory crackdowns, we are left with Bitstamp and Kraken, with Kraken being more diverse geographically and boasting 9 fiat-crypto pairs not listed on Coinbase. The chart below lists the 9 pairs that trade on Kraken.

CryptoExchangesTraded on Top 15*Trading PairsCurrencies
Dash64123212
Ripple61143216
Eth. Classic5014198
EOS459277
Zcash46132210
Monero3510229
Stellar269257
Augur256125
Gnosis1268

Shrinking the Crypto-Verse

If we assume that Coinbase will shy away from privacy coins for now just to avoid AML regulatory scrutiny, and Ripple and Stellar are out because of the ownership stake held by the team, we are left with Ethereum Classic (Ethereum Foundation holds 10%), Augur, EOS, and Gnosis.  Not too bad considering we started with a crypto-verse of more than 1,600 coins.  


Images via Shutterstock, Youtube, Charts via diar.co, coinigy.com

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