Despite a rough start in 2018, cryptocurrencies are continuing to draw hordes of new investors in many parts of the world, thanks to the record surge of bitcoin and other virtual units last year.
Some trading platforms have been adding tens of thousands or more users every day as the speculative fever surrounding digital currencies hasn’t waned yet, though it may have cooled a bit.
Among those that claim that business is still strong is online brokerage eToro, which enables retail investors to trade cryptocurrencies like bitcoin, and to copy the strategies of its bitcoin trading masters.
Jasper Lee, CEO of eToro’s Asia Pacific operations, says crypto-asset trading remains robust on the platform after its global user numbers topped 7 million as of November.
Pointing out that the customers come from more than 170 countries, Lee told EJ insight that eToro added tens of thousands of users per day in the last twelve months.
“We have experienced explosive growth in revenue last year,” Lee said in an exclusive interview, adding that it was largely due to a surge in crypto-asset trading.
Founded in 2007, eToro has introduced the concept of social trading with the launch of their multi-asset investment platform. Long before the rise of the crypto craze, eToro had offered virtual-unit trading back in 2013, “when literally nobody cared about cryptocurrencies,” noted Lee.
That was largely due to the drive of eToro founder and CEO Yoni Assia, a cryptocurrency enthusiast who co-wrote the Colored Coins whitepaper with Ethereum creator Vitalik Buterin in 2013.
With a huge surge in popularity of cryptocurrency, especially bitcoin, over 70 percent of eToro’s customers have traded crypto as of December last year, Lee claims. At the beginning of 2017, that percentage was just at 10 percent, according to the executive.
The count includes customers trading crypto on their own, and those who invested in eToro’s cryptocurrency CopyFund, which tracks the activity of seven major cryptocurrencies according to market cap.
Lee explained that CopyFund is an investment instrument eToro created by leveraging its massive user base. It can be roughly divided into two types: Market CopyFunds and Top Trader CopyFunds. The former focuses on a specific market segment or investment themes, while the latter contains a diversified portfolio inspired by top performance investors.
Served as a simpler way to allocate investment on cryptocurrencies, eToro’s CryptoFund covers major tokens including bitcoin, ethereum and ripple, functioning as a sort of cryptocurrency ETF.
The weighting to individual currencies assigned in the fund is determined by a portfolio manager at eToro, and the fund is analyzed and automatically rebalanced once a month based on the change in market cap of respective tokens. If any of them dips beneath a specific lower limit in terms of market cap or trading volume, a currency could be dropped from the fund.
“There are over 1300 separate cryptocurrencies tracked on coinmarketcap.com, and thousands more of others on the market, whose market value cannot be determined,” said Lee.
“To make a solid investment bet, we only pick the crypto tokens with the market cap and trading volume ranked in the top 10, among other criteria.”
EToro’s CryptoFund is traded as a CFD (contract for difference) derivative, which does not involve the purchase of an underlying asset. Instead, a CFD is an agreement between an investor and a broker to pay each other the difference between the price of an asset at the moment the contract is made and its later price, when the investor decides to terminate the contract.
It acts pretty much the same way as the regular purchase of any other asset. If the price of the asset goes up by 10 percent, your investment does the same, and vice versa. The difference stated in the contract can go in any direction, so people can invest in the possibility of prices going up or down.
“There are in general three ways to invest in cryptocurrencies: Regular buy and sell, which you can do it in virtual currency exchanges; trading bitcoin futures contract listed by Cboe and CME Group; and trading cryptocurrency-based CFDs, which means you are not buying ‘real coins’, the exchange buys it on your behalf,” Lee explained, “just like trading the digital gold certificates.”
Lee believes trading CFD enables a person to avoid the risk incurred in regular buying and selling. “It mitigates the risk of hacking when the centralized exchange – where you stored your crypto assets – gets hacked,” he said.
Traders have to pay spreads and fees for CFDs, which are the revenue source for eToro. Lee said the spreads range from 0.02 percent to 1 percent of the transaction size, varying according to market conditions and liquidity.
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