Cryptocurrency Finance

The Would-Be Robinhood Killer You’ve Never Heard Of

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter.

The financial world has become so blasé about SPACs that they barely get reported anymore, even when they involve multibillion-dollar companies in one of the hottest and most contentious spaces: free digital trading of stocks and cryptocurrencies. This week the Israeli company eToro announced that it will go public in a $10.4 billion deal, being acquired by a SPAC created by veteran banker Betsy CohenThe New York Times devoted a sparse 17 words in DealBook to this transaction, even though a reasonable case can be made that eToro provides the biggest competition Robinhood will face in the next couple of years.

Remarkably, eToro was launched way back in 2007, when almost no one was thinking about cryptocurrency or trading over a smartphone. It has attracted millions of European customers, and by making strategic acquisitions in crypto trading.The company boasts of more than 20 million customers in more than 100 countries, and is growing as fast as its spirit animal would suggest; toro, of course, is Spanish for “bull.” When you set up an eToro account you get a bullish avatar, e.g.:

Given eToro’s size, it’s striking how little attention the company has received, even after hiring Alec Baldwin last year as a slick, self-referential pitchman:

A Google Trends comparison between Robinhood and eToro over the last year is revealing; you might be able to guess which company is in blue and which is in red:

For all the attention gap, the companies are not that far off financially. Robinhood’s estimated 2020 revenue was $682 million, which is more than six times its revenue in 2019. Still, it’s not much larger than eToro’s $605 million, and when you consider that no one who is not a US citizen can currently open a Robinhood account, the potential for eToro’s growth is arguably more promising. Intriguingly, eToro doesn’t use the payment-for-order-flow model that landed Robinhood in trouble during the GameStop Götterdämerung. Instead it makes money on the gap between buy and sell prices.

It’s worth noting, however, that eToro is not yet available in all states; FIN tried to open an account from New York and was denied. It’s also hard to be a Robinhood killer when the company has some of the same exposure. The social trading character of eToro is bound to come under scrutiny as it expands in the US, particularly the CopyTrader function that automatically mimics the actions of a designated trader. And one of eToro’s most distinctive and risky features—“contract for differences”—is prohibited by US security laws.

Moreover, there is a little less to eToro than meets the eye. Granted, 20 million registered users is a huge base, but only a tiny fraction of that—1.2 million—are funded accounts that actually trade. That makes the $10 billion market valuation look awfully optimistic. Still, if eToro can find ways to lure Robinhood traders away, the landscape could look quite different in a year or two. (FIN requested an interview with eToro officials, but no executive was made available before publishing deadline.)

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.

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