Does Coinbase’s Negative Premium Portend A Massive Rally In Bitcoin?

Over the last few days, the so-called Coinbase Premium has generated substantial visibility, as some believe its current value could signal that bitcoin will climb sharply in the coming months.

However, not everyone agrees with this interpretation, as analysts polled for this article provided mixed input on what, exactly, this particular indicator’s current value actually means for the cryptocurrency.

The premium, which measures the difference between bitcoin prices on Coinbase (used largely by U.S. investors) and Binance (caters to a more global audience), is used to signal American demand for bitcoin relative to demand worldwide.

David Lawant, head of research for FalconX, helped this particular indicator draw visibility with a recent post on X (formerly Twitter).

“Always darkest before the dawn?” he asked. “According to my calculations, the last time the Coinbase premium was this negative was a couple of months before the massive rally from Oct ’23 to March ’24.”

Julio Moreno, head of research for CryptoQuant, provided a chart via Telegram showing how the Coinbase Premium Index has changed going back to late 2022.

“Current Coinbase premium is the most negative it has been since November 2022, after the FTX collapse occurred,” he stated, referring to the exchange’s fall from grace.

“This denotes relatively lower Bitcoin demand from US buyers,” Moreno added.

“Typically these extremely negative values have marked price bottoms,” he noted.

“However, most of the subsequent price rally comes once the premium becomes positive (as US demand returns).”

However, several analysts who offered input for this article provided more skeptical views.

“With the plethora of indicators out there, some with a much longer and better track record than the Coinbase-Binance premium, I would not put too much weight behind any such short-term signal,” Tim Enneking, managing partner of Psalion, said via emailed comments.

“To me, if one is looking to read the tea leaves, the four-year BTC halving cycle (which would have the bull market beginning later this year and running most of next) is a much more reliable (and longer-term) indicator,” he added.

Brett Sifling, an investment advisor for Gerber Kawasaki Wealth & Investment Management, also weighed in.

“The Coinbase/Binance premium is a very interesting data point. In the past when there is a spike in the premiums, it has indeed been followed by a rally in Bitcoin prices,” he noted via email.

“This thesis makes a lot of sense since Coinbase is typically used by US-based investors and Binance is a more globally oriented exchange,” said Sifling.

“When the premium is positive, it can indicate higher buying pressure from the US investors compared to global investors. Since US investors have deep pockets, this could be a reason for the rallies that follow,” he emphasized.

However, Sifling cautioned against relying on this single indicator to predict what the markets will do.

“I don’t think this data point alone is enough to portend an upcoming rally in Bitcoin prices, but it’s something investors can use when building a model on their own investment thesis of buying Bitcoin,” he stated.

“Investors might also want to consider other datapoints, such as the ETF flows and upcoming changes in regulation due to the presidential election that is right around the corner,” Sifling added.

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and SOL.