Bitcoin continues to draw investors despite recent slide: eToro

March 23, 2020 08:30
Yoni Assia, an early bitcoin acolyte and CEO of eToro, believes his online investment platform will continue to play a key role in asset tokenization, with cryptocurrency adoption the major first step. Photos: eToro, Reuters

Since its launch more than a decade ago, bitcoin, the largest cryptocurrency by market cap, was regarded by believers to be the “digital gold”, a new type of safe-haven investment like gold that would retain value when most other asset classes hit a rough patch.

Such assumptions, however, received a substantial jolt in recent weeks in the wake of the market turbulence caused by the global coronavirus outbreak.

Amid market shocks triggered by fears over the pandemic, the bitcoin actually recorded larger decline than other “traditional” assets over the past month. 

"While gold has been rallying, cryptoassets including bitcoin continue to face heavy sell-offs amid the growing global epidemic, challenging bitcoin’s safe-haven status," Yoni Assia, an early bitcoin acolyte and CEO of social investment platform eToro, said in an interview with EJ Insight.

After a bull run in 2019, bitcoin got off to a strong start this year, with a 40 percent surge to US$10,326 in mid-February from US$7,193 at the end of December. But it then plummeted by 50 percent to US$4,970 within a month. As of March 19, it was trading at US$5,294, according to market data provided by CoinMarketCap.

In contrast, the price of gold, a traditional safe-haven asset popular with investors looking for an alternative to US dollars, has fallen by 8 percent in the past month.

"The preliminary goal of safe-haven assets is to protect investors during market turmoil; investors typically seek assets that have an inverse correlation with the stock markets,” said Assia.

"However, unlike traditional safe-havens (Treasury notes, US Dollar, Swiss Franc, Japanese Yen, gold), the bitcoin market is a speculative one with high volatility, which might explain why they are failing to act as a safe-haven asset.”

The slide, however, appears to have prompted some investors to build positions again. 

“Data from eToro [in early March] shows that bitcoin is being bought more than it is being sold despite its value dropping, which could suggest investors are viewing this as a buying opportunity,” Assia said.

Founded in 2006, the online investment platform eToro enables users to buy and sell cryptocurrencies, in addition to other traditional assets.

To stand out against other online trading platforms, eToro positions itself as a “social trading” platform, offering social features such as “Copy Trading”, which allow users to automatically copy other traders in users’ own accounts.

Assia said the goal of his platform has always been to simplify trading in order to make it more accessible, as it does for investing in crypto, which has been seen acting as a gateway investment for other asset classes.

He revealed that 73 percent of new investors who joined eToro globally in 2017 and 2018 have purchased crypto. “Of these investors, more than one in ten (11 percent) diversified to invest in other assets including stocks, commodities and forex alongside their crypto investment.”

eToro tends to attract millennial investors, with data showing its registered traders to be of a younger demographic -- 33 percent of its 12 million registered users are under the age of 35. In the last couple of years, the 18-35 age group has become the dominant position holder in both stocks and crypto on the platform - 55 percent and 62 percent respectively.

Assia told EJ Insight that many of eToro’s users are long-term crypto investors taking a “buy-and-hold” approach toward the crypto assets. 

An increasing number of young people are investing in cryptocurrency, even though such assets were yet to convince some prominent large investors, he noted. 

Billionaire investor Warren Buffett had repeatedly trashed bitcoin and other cryptocurrencies as worthless. But in February, the value-investing guru sat down for dinner with crypto entrepreneur Justin Sun, founder of blockchain platform Tron and the CEO of file-sharing platform BitTorrent. Assia was among the guests Sun brought to the dinner after winning a bid in a charity auction last May.

Assia said he is a great believer in crypto assets, and that in the long term the asset class will see increased interest from institutional investors and high net worth individuals (HNWI). 

“Like any other assets, it takes time for investors to recognize and trust a new asset class,” he said. “For example, US REITs were once relatively new, having been established by Congress in 1960 to give small investors access to income-producing real estate. The approach flourished and this asset class has since been adopted by 35 countries around the world.”

Highlighting the US investment bank JPMorgan Chase’s “JPM Coin” digital coin initiative, as well as the growing interest expressed by global central banks in launching their own digital currencies, Assia said institutional and professional investors will want more regulatory clarity before investing.

A clear regulatory framework will help to provide legitimacy and reduce risks for investors, he said, while pointing out that some institutions are already dipping their toes in the field. Assia believes more investors will enter the crypto space and facilitate wider adoption of the virtual assets.

“We believe that in the future all assets will be tokenized, with crypto being the first step in this journey," he said. “eToro will continue to play a key role in this revolution.”

In 2018, the Israeli fintech startup launched “GoodDollar”, a blockchain-powered, open-source crypto project which is geared toward providing Universal Basic Income (UBI) and reducing wealth inequality using blockchain.

As a hot topic being discussed by academics and politicians in the past few years, UBI is a type of program in which each citizen is guaranteed a regular sum of money from a source such as the government.

Assia said the core idea behind GoodDollar is to pay higher interest rates to those with less wealth, thereby ensuring all account holders receive a basic income.

“We are still very much at the early stage of blockchain technology, yet I am incredibly excited about its potential -- especially its potential to do good.”

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EJ Insight writer