EToro is a multi-asset brokerage firm that saw 3.1 million new users flock to its platform in the first quarter of 2021. The growth was more than double the 1 million it gained last year during the same quarter.
What’s slightly unique about eToro’s platform is that it offers a social element by allowing investors to view and copy the trades of other successful investors.
The influx of new clients is in line with, and partly attributable to, the growth of retail investors and the increased popularity of cryptocurrencies that occurred towards the end of last year and at the beginning of 2021.
Ben Laidler, the global markets strategist for eToro, laid out his recent observations in an interview and said that when it comes to cryptocurrencies, the sector’s growth is just getting started, especially as institutional investors begin to enter the space and add bitcoin to their portfolios.
He shared with Insider what he thinks is most attractive about bitcoin and added his insight on which altcoins are growing in popularity.
Bitcoin’s real value
Although most investors view bitcoin as a store of value, there are two key elements that increase its attractiveness, says Laidler. The first is its risk-adjusted returns and the second is its low correlation with other asset classes.
Bitcoin made headlines back in April after it experienced a 50% pullback in four weeks. In spite of that, Laidler says bitcoin is still a strong-performing asset class.
“It really doesn’t matter over what sort of time periods you looked at, risk-adjusted returns for crypto assets are dramatically higher than any other asset class,” Laidler told Insider, as he referred specifically to bitcoin.
“People find that shocking. You know, bitcoin is still up 30% this year. The next best-performing asset class, commodities, is up sort of 20% to 23%,” he adds. The Bloomberg Galaxy Crypto Index, a broader gauge of the largest digital currencies traded in dollars, has gained 112.5% this year.
The second key to bitcoin’s attractiveness is its low correlation with every other asset class, says Laidler.
“Over the longer term, it’s negatively correlated. And what that means is if equities go up, cryptocurrency goes down, and vice versa. So that is a long-term relationship. The shorter-term relationship is just it’s lowly correlated. So if equities go up a lot, crypto goes up a little. If equities go down a lot, crypto only goes down a little,” Laidler says.
What that means simplistically is despite the very high volatility, an investor can add bitcoin into a broadly diversified portfolio and it can lower the risk in that portfolio, Laidler says.
As for the ups and downs of bitcoin’s price points, it’s part of the growing pains since the asset has only been around for about 12 years. But as more institutional investors add it to their portfolios, he believes there will be a reduction in volatility.
Other rising cryptocurrencies
When it comes to cryptocurrencies other than bitcoin, Laidler says there is generally increasing interest in proof-of-stake currencies, which is a form of consensus that employs a network of validators but does not require high amounts of energy consumption. Laidler adds it’s likely due to the growing interest in ESG investing, which are intangible metrics linked to sustainability.
He says that the increasing importance placed on clean energy and efficiency, combined with Tesla’s recent decision to stop accepting bitcoin, has put a positive focus on green mining platforms and assets not using energy-intensive proof-of-work systems, but rather pre-mined or consensus mechanisms (PoS).
He says the beneficiaries of this trend include:
- Cardano (ADA), which has seen a 702% increase year-to-date.
- Polkadot (DOT), which has seen a 30% increase year-to-date.
- Solana (SOL), which has seen a 2,657% increase year-to-date.
Advice to investors
While Laidler has an enthusiastic outlook on bitcoin and other cryptocurrencies, he doesn’t recommend investing in anything you don’t understand.
“Education, diversification — only invest in things that you understand and only invest as part of a broadly diverse, wider portfolio. So whatever you do, don’t just invest in bitcoin, make that a small part of your overall portfolio,” Laidler says.