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With $10 Billion+ Raised, Will eToro Snag Robinhood’s Let-Down Users?
By combining crypto and stock trading with copy-trading, few will be able to resist eToro’s value proposition.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
eToro’s entrance into the US stock trading market couldn’t have been timed better. As Robinhood made a mockery of its own “democratizing” motto, are millions of retail investors primed to make the switch?
Robinhood-eToro Rivalry Repeats Itself
Last summer, eToro managed to corner the UK stock-trading app market with its debit card launch. At the same time, Robinhood had scrapped its own long-awaited UK card launch, citing intensified SEC scrutiny following the suicide tragedy. Whether that was the case, or Robinhood determined it wasn’t worth it to engage in stiff competition with eToro at that time, eToro gained the upper hand in the world’s stock trading app market.
The same dynamic appears to be transpiring again. This time, instead of a trade-related suicide, Robinhood’s very raison d’etre had been severely undermined as the “democratizing” brokerage effectively sabotaged retail investors to short squeeze Wall Street hedge funds to the full extent. With a slew of lawsuits still pending, Robinhood had confidentially filed a submission to the Securities and Exchange Commission (SEC) for IPO – initial public offering.
In the immediate aftermath of Robinhood’s delisting of GameStop (GME) and other stocks, it raised $1 billion from its existing investors. To keep its zero-fee trading service afloat, an IPO would present a steadier funding source. However, Robinhood’s IPO filing is happening against the backdrop of eToro’s upcoming IPO as well.
eToro to Go Public via SPAC
You will likely hear this term more and more in the financial world – SPAC – Special Purpose Acquisition Company. Also called a blank-check company, it is a shell company evolved. Its function is not to have assets or commercial purpose but to facilitate a merger with another company so it goes public.
eToro used such a SPAC IPO mechanism to first raise funding by being listed on the stock exchange. Then, the SPAC merger took place, just as it happened on March 16th with eToro. The operation secured eToro Group Ltd. $10.4 billion in funds, with an $800 million balance sheet. In Q3 2021, the deal should be finalized, resulting in eToro’s listing on the Nasdaq stock exchange.
One cannot escape noticing that a week later, on March 23rd, Robinhood released an IPO filling announcement of its own. According to Fortune’s survey, 56% of participants reported they are considering leaving Robinhood in search of better trading pastures. However, Robinhood still has an enticing hook – trading in both cryptocurrencies and stocks. That is about to change with eToro’s arrival.
eToro as Complete Trading Package Entering US Stock Market
The Israeli-born company had been covered many times, receiving a favorable review from The Tokenist, just as Robinhood had. Its core distinction from other trading platforms is its fusion of social networking and diversified tier system, ranging from bronze to diamond. Moreover, with just a $50 initial investment, traders receive access to eToro’s OpenBook and WebTrader, allowing them to copy trading strategies from renowned professionals with a high-performance ratio.
Effectively, eToro long ago realized what a previous Fidelity Digital Assets report had concluded – in the internet era, social networking drives engagement and investments, not institutions. One only has to glance at the GME short squeeze saga to understand this. In eToro’s investor presentation, their strategy takes into account such key ingredients for future growth:
- Citing the data The Tokenist had covered previously, regarding the passing of over $30 trillion in assets from boomers at the same time as millennials constitute the largest age group in US history. One that embraces digitization and prefers to invest and save.
- Confirming that 62% of users trade with more than one product type.
As of this month’s press release, eToro has about 20 million users worldwide, in contrast to Robinhood’s lingering 13 million. eToro’s balancing act as it aims to dominate the US brokerage market can be summed up with these three elements.
Similar Business Model but Untainted Reputation
Like Robinhood, eToro makes money by relying on three core business models:
- Incurring non-trading fees: spreads, inactivity, conversion and withdrawals.
- Stratified club system.
- Market maker model – taking opposite positions to trades made by investors, thus ensuring the trades are hedged by using third-party liquidity providers.
Market makers are necessary for centralized finance, despite the exposure of Robinhood – Citadel dealings leaving many with an uneasy feeling. When it comes to DeFi, AMMs (automated market makers) have done away with the potential for such improprieties. No doubt, eToro’s integrity will be tested after it launches stocks and copy-trading in the US this year.
In conclusion, this represents a culmination of eToro’s introduction of crypto assets and social networks in 2019. Soon after, in 2020, FINRA approved eToro’s dealer license. In addition to the brokerage’s foray into the American stock market, expect to see the launch of its debit card for instant deposits and withdrawals by the end of the year.
Note: Since this article was published, eToro has subsequently delayed its plans to go public via SPAC.
With Robinhood and eToro’s approaches compared, do you prefer eToro’s approach of slowly easing people into the world of finance? Let us know in the comments below.
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