eToro’s CEO Yoni Assia on Trading Cryptocurrencies and the Future of Finance

Yoni Assia is one of the pioneers of crypto trading via the brokerage company he started as a tech firm, eToro. His expertise in the trading industry was at the forefront of the company’s adequate approach to Cryptocurrencies . eToro started offering Bitcoin some years ago and a number of other cryptos in the early months of 2018.

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After some incidents of risk mismanagement by some CFDs brokers, we have spoken with Mr. Assia on the best ways a brokerage can approach cryptocurrency trading and what are the main reasons for the success of the new financial instruments. For our readers that are keen to watch the full interview, we are embedding the full video, as well as the full audio recording of the talk we had with eToro's CEO.

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We’re here with the CEO of eToro Yoni Assia to discuss the latest developments in the industry today and the involvement of eToro in cryptocurrencies. How did you start with cryptocurrencies?

We were excited about cryptocurrencies very early on. I’ve been involved in the industry since 2010. We were lucky and smart as a company to buy some Bitcoin in 2011 and 2012 and we launched Bitcoin trading on eToro in 2014. We were also relatively early on with Ethereum partly due to our connection with Vitalik Biterin, with whom we wrote the colored coins white paper.

While he was in Israel he stayed in eToro’s offices. It was about the same time while he was building Ethereum, which was the next stage in the development of cryptocurrencies. We started offering ETH in January 2017, which was at the same time when we saw the entire amazing growth of the cryptocurrency market throughout 2017.

This early start for eToro with cryptocurrencies has been material to your success. What was the trigger that drove you into crypto?

I really believe that the invention if cryptocurrency will have a much bigger impact on the world that people understand right now. I parallel the invention of cryptos and the Blockchain to the invention of electricity, computers and its bigger than the invention of the internet. The reason for this is that we are redefining finance, almost redefining economics as computer science. This is a huge leap in the history of humanity. When people analyze current years in the future, they will be marking the period as a “revolution”. We’re only at the beginning of it and it is going to impact every single part of the financial services industry.

We have two types of approach towards trading cryptocurrencies - the first approach is via physical delivery of the product and the other via CFDs. What is the model that you have chosen and why?

We have decided to offer physical cryptocurrency trading on eToro. We have added seven cryptocurrencies and are in the process of adding more soon. We actually buy for our clients the actual asset and hold the currency on their behalf. With the volatility in the cryptocurrency market, leverage is actually too dangers for people to use. Since we believe in cryptocurrency in the long term, we actually would like to see our users hold it for the long term. Therefore no leverage trading is the right approach when it comes to this asset class.

I also think that a big part of the revolution that is going is that people can actually hold the assets and that these assets are being moved between counterparts. Throughout the years we have developed great relationships with exchanges and liquidity providers and we feel its important to be a part of this market.

You just mentioned exchanges: how do you interface with exchanges and is it easy to execute links to exchanges that have different infrastructure when compared to brokers?

It is a bit different from traditional markets, but we have experience in a multitude of asset classes. We already are connected to stock exchanges, the largest banks and everything we do is automated. Whether a client is trading an ETF, or Bitcoin or Ethereum, our systems in the backend of the platform connect to the market and trade automatically. In the crypto market, the only difference is that we are connecting to the largest cryptocurrency exchanges in the world. It is a bit different with the settlement, which is executed in real time, but the credit risk is higher. It is a bit of a different approach, but we are actually using the same methodology that we use for stock markets.

The crypto market has proven to be challenging for some brokers that are offering CFDs and managing risk on those. What would you advise brokers that are offering CFDs?

I think that in this market the physical market is a more viable approach than CFDs and I think that it is also important that the behavior of clients actually impact the market. Some brokers have underestimated the risk of the cryptocurrencies rally continuing and mismanaged risk. Some people thought that the leap from 2000 to 5000 will mark the peak, looking at this market as onto a typical financial instrument. This is very different, this is a digital gold rush. We are seeing the largest move of financial assets in the history of mankind.

The price of Bitcoin can easily reach 50,000 and easily go down to 5,000 or 2,000. I think that being a part of this market and connecting the dots and being connected to the blockchain industry is very important in this space.

Let’s speak about a very important issue for clients which is security. We have seen some exchanges go bust in the past and some people say that we are going to see it in the future as well. How do you mage this risk?

We are a relatively large company as we have about 500 employees worldwide. We have a very large tech team that includes developers, IT experts, security experts and we’ve been in the space for a while so we understand the pros and cons of where and how to keep crypto safe. It is also about the customer’s experience - a lot of them want to safe keep their cryptocurrency on their own. This makes sense to some more sophisticated clients that understand how to keep their cryptocurrency safe and how to manage it. At eToro we simplify this process for people and do it for them. We are regulated throughout Europe in the UK and we always look at our customers’ best interest.

We have seen some regulators introduce caps on the maximum exposure of cryptos when compared to the whole book of a brokerage. How do you address this matter?

Today out of the volume at eToro its probably about 10 to 15 percent. From a regulatory point of view, we are taking a position to help regulators understand more about cryptocurrencies. I think that this technology presents a great opportunity for regulators because traditional finance is very opaque. It is very hard for a regulator to understand what’s really happening at a particular financial institution. All of the big problems in finance come because regulators can not see what’s really happening inside a given financial institution.

One of the huge opportunities stemming from blockchain is to enable a truly transparent system, where regulators can look into the books, into the ledgers of financial institutions. Not only they can see the exposure of one financial institution, but they can also see the exposure of the entire industry as a whole. So we’ve seen a lot of regulation throughout MiFID II that enabled regulators to force brokers to become more transparent via more reporting. But I think that a regulated blockchain could really help regulators understand better the entire infrastructure and the entire financial assets distribution within the ecosystem of financial institutions.

Some regulators are very smart as we have seen the ESMA publishing a great paper on the potential of distributed ledger technology. We’ve seen Gibraltar starting to set up a regulatory framework. Regulators are very interested in this space and we’re trying to help them understand what we do as a company from a practical point of view.

When dealing with cryptocurrencies, the social aspect of eToro magnifies the impact of the purchase of cryptocurrencies on the price. How do you manage this aspect of your offering in cryptos?

As the company that invented copy trading, at eToro, we have actually written some patents on how to reduce market impact in copy trading. Our system actually guarantees to our clients that they get the exact same price at the exact same time as the trader whom they are following. We’ve built algorithms to enable us to both predict and send the block trade into the market. It is very similar to other assets, but I think that the social aspect in cryptocurrencies is much more important than in traditional securities. The reason is that this is a social currency. Bitcoin is a currency that was created b people on the internet for people on the internet. Ethereum is a smart contracts platform that was built by the internet for the internet.

I think today more people show interest in cryptocurrencies than in any other asset. It’s important for people to be able to communicate with other people who are interested in those assets. We’ve seen a huge dialogue: thousands of people are taking every day about Ethreum and Ripple on eToro. They try to bring information from the internet and explain to other people what’s happening and also do it from a global perspective. Its very interesting to see people from China, Russia, the European Union, Latin America and Australia talking to one another on a single platform about an asset that suddenly interests everybody.

You mentioned that Bitcoin is made for the people by the people, but then we see Wall Street come in and the price peaked on the day of the launch of the CME’s futures contract and a sudden crash lower on the day of the first settlement of the futures contract. What are your thoughts about this?

I think that it is inevitable for Wall Street and traditional finance to go into crypto. Right now they are sort of tap dancing around it, everybody is talking about it, but they are not sure whether or not its a bubble. They say that it is, but they also say that blockchain is their future. There is this sort of schizophrenia of Wall Street and the traditional financial institutions around Bitcoin and the blockchain. I think eventually we’re going to see traditional financial institutions go into crypto.

If you think about the global brokerage industry which is relatively sophisticated and agile, it also has problems in wrapping their hands around blockchain tech. I think it’s going to take a bit longer to understand this new asset class and understand how to value it. Right now the majority of money in the world are held via major financial institutions who haven’t even started looking at crypto. What we’re seeing is trading desks, which are some of the more sophisticated parts in a lot of banks, getting approval to trade crypto just to understand what’s happening.

What we are seeing right now is some trading houses and trading desks, coming into the market and testing and experimenting. We still don’t have the buy-side that takes a long-term exposure to the market. I think that it is good that Wall Street is coming in, they are experimenting with crypto and their end goal is for financial institutions to actually get into this market.