Yoni Assia on how eToro embraced a rollercoaster 2020

Yoni Assia knows a thing or two about rollercoasters.

After a three-and-a-half-year stint as a programmer in the Israeli army, he launched a company called CDRide which installed video cameras on rollercoasters to film the experience for riders.

After that, in 2006, he founded the trading business eToro at the tender age of 25. A veteran by fintech standards, eToro has endured the twists and turns of not only the 2008 financial crisis but also two separate crypto rallies.

"'From one roller coaster to another’ would be the name of my biography," Assia says.

The company’s primary business continues to be offering what it describes as “commission-free stock trading” for amateur investors, but it also has a sideline — worth 16% of its revenues last year — in cryptocurrency trading.

eToro jumped on Bitcoin’s wild ride early: it first bought at $5 in 2011 and later diversified into Ethereum and other cryptocurrencies. By the time the crypto rally of 2017 rolled around, eToro had a “significant part” of its treasury held in crypto, and Assia was scrambling to keep up with the first instance of rampant retail demand for crypto.

Then came the crash and the years-long slowdown that many in the industry called “crypto winter." Last year, the winter finally gave way to renewed growth.

Today, we are chatting over Zoom after a tumultuous 2020 that turned out to be extremely lucrative — and in certain ways vindicating — for Assia's eToro.

Hindsight and 2020

In 2020, the platform added another five million registered users, bringing the total to 17 million, and grew revenues by more than 150% en route to a profitable year — albeit not the company’s first.

The business also hired some 400 people to grow its global headcount to 1,100, all while managing a swift transition to working from home.

Assia, who has dialed into the call from one of his offices, thinks the shift to remote working due to the pandemic has had a leveling effect on the workforce. “We all have the same square on Zoom, whether you’re in the UK or in Belgium or in Israel,” he says.

When markets took a tumble in March, as the Covid-19 pandemic took hold, eToro investors were rushing to buy tech stocks and perceived bargains, like Airbus. That was reminiscent of eToro’s other market, Assia points out.

“They were buying the dip, right? In the crypto world, things like buying the dip and the Fed printing money are the basics of people trading crypto, but for a wider audience of retail investors, they came to buy the dip; they saw opportunities,” he says, smiling at the idea.

Throughout the remainder of the year the price of bitcoin, and indeed other cryptocurrencies, built steadily towards a December explosion that has continued into January. Bitcoin, currently residing at around $34,000, crossed $40,000 for the first time earlier this month.

Recently, it has even become trendy to buy bitcoin as a treasury asset, as business analytics firm MicroStrategy did throughout last year — with some audacity.

But eToro has been there, done that. It ultimately sold the crypto war chest it had begun amassing in 2011 for around $30 million, according to Assia. Not a bad return from an initial investment of $50,000.

Meanwhile, the latest rally has been another boon for eToro; Assia shares his screen to show how Google searches for bitcoin have mirrored activity on the platform. It has also been a smoother ride than in 2017.

At that time, eToro used what Assia describes as an order aggregator, and worked — often manually — with various crypto exchanges to meet surging demand from investors.

“In some cases, during crypto rally 1.0, we had to go out into the market and buy $200 million of bitcoin in one day, which is quite significant if you think about money movements and how you fund exchanges and what are the risks,” he says.

That process is now a lot simpler thanks to eToroX, the crypto exchange the firm launched in April 2019, which is regulated by the Gibraltar Financial Services Commission.

“During the crypto winter we basically automated a lot of the processes,” explains Assia. “We built our own exchange. So now when people are trading on eToro, that flow flows through our own eToro exchange, somewhat similar to Coinbase and Coinbase Pro.”

The 'coaster rolls on

These updates also changed the nature of the crypto exposure that eToro offers its customers — and just in time, too.

They allowed the company to move away from so-called contract for difference (CFD) products — derivative products used to speculate on the future direction of a market's price — before the Financial Conduct Authority, the UK regulator, made them illegal.

In October 2020, the watchdog banned the sale of crypto derivative products to retail investors. By that time, 84% of eToro’s client positions in crypto were in the real underlying asset, with no leverage, meaning the company was relatively unaffected.

Another set of regulatory hurdles for the business to clear are the various anti-money laundering registers established by governments in Europe.

eToro has been included in the FCA’s interim list of firms that will be allowed to operate. But it was left off an initial list published by the Dutch central bank, prompting it to put a halt to new investments in crypto by Dutch customers from the start of this year until it can get registered.

The company had initially told customers in the Netherlands that they would need to sell their crypto holdings by January 23, but that is no longer the case, according to a spokesperson.

Regulation aside, the bitcoin rally — the very thing eToro is benefiting from — also presents challenges. The firm recently warned customers in an email that it may curb bitcoin buying should highly-volatile market conditions prevail.

Assia says the warning was an attempt to ensure people are aware of the risks of trading cryptocurrencies.

“It was a risk warning that this is a possibility that might happen, which by the way didn’t happen so far, but we do think it’s important for our customers to understand what happens in a crazy rally like December 2017,” he adds.

As for eToro’s own exposure, crypto now only represents “a small part of our global treasury,” Assia says. “We felt that our business is sufficiently exposed in a positive way to crypto prices scaling up and therefore we shouldn’t hold a significant amount of our treasury in crypto as well.”