Financial Supervisory Commission (FSC) focuses on eToro, but why do Steve and Dave still outperform cryptocurrency exchanges?

[The title "Stock Cancer is being used!" has been removed as Stock Cancer is evaluating eToro, unsponsored, and not endorsing it. To avoid misunderstanding, it has been removed. We apologize for any inconvenience caused.]

eToro has been popular in Taiwan for a long time, with its "Steve and Dave" ad deeply ingrained in people's minds. On July 14, the Financial Supervisory Commission issued a press release "urging" investors not to use platforms of foreign securities and futures companies like eToro in Taiwan, as unregistered securities firms are not allowed to operate in Taiwan. However, this is not the first time the Financial Supervisory Commission has issued a warning, and its actual regulatory ability is limited. The well-known Podcast "Stock Cancer" bluntly states that the Financial Supervisory Commission is just advocating for domestic securities firms that lack competition.

Not only eToro, but also brokerage platforms like Robinhood and E*TRADE provide convenient apps, allowing many first-time investors to easily invest in global stocks, ETFs, and even niche cryptocurrency markets. The phenomenon of excessive stock market speculation this year has attracted a large number of users globally.

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These platforms offering Contract for Difference (CFD) actually do not provide users with actual ownership of stocks or futures, but merely reflect profits and losses through price movements. (Note: eToro announced in May this year that users actually own shares and receive dividends.) To some extent, it is similar to "speculating on coins" on cryptocurrency exchanges, but the users who "speculate on stock fluctuations" and "speculate on cryptocurrency fluctuations" are quite different. Why is that?

The Unstoppable Train: What is eToro that the FSC Cannot Stop?

eToro, formerly known as RetailFX, was established in 2007. In 2010, eToro introduced a "social platform" that allows for automatic copy trading. The company is mainly based in Cyprus, the UK, and Israel, with offices in Hong Kong, Shanghai, Australia, and the US. The platform is regulated by the Cyprus Securities and Exchange Commission and the Financial Conduct Authority in the UK, offering CFDs on stocks, ETFs, cryptocurrencies, indices, commodities, and currencies. It has been criticized in the past for high risk due to default leveraged trading and high funding cost rates. After introducing the option of one-time leverage (no leverage), it became more user-friendly for inexperienced retail investors. The platform claims that users can buy stocks in fractions with zero commission, owning shares and receiving corresponding dividends.

A popular podcast in Taiwan, "Gooaye Stock Cancer," recently discussed eToro, pointing out unresolved compliance issues in Taiwan and advising against excessive use. However, it is speculated that the FSC's lawsuit against eToro is more of a warning to domestic securities firms, as it is challenging to enforce penalties on compliant foreign securities firms.

According to investigations, cases like eToro being referred to prosecutors are not isolated incidents, including three years ago with Tiger Securities and a year ago with VTI. Although these platforms operated illegally as securities firms in Taiwan, the FSC finds it difficult to regulate effectively, therefore can only educate investors that they will not be protected in case of consumer disputes.

In practice, online brokers like eToro have many advantages. The "Stock Cancer" program mentioned that currently in Taiwan, investing in US stocks still requires applying for "commissioned trading," which is not only cumbersome but also incurring fees from brokerage firms.

Compared to platforms like eToro that are fast and commission-free, they are much more attractive to investors. Looking globally, the standout platform in this category, Robinhood, is becoming increasingly popular.

Distance from Online Brokers: Taiwan Still a Desert for Cryptocurrency Trading

It is believed that platforms like Robinhood and eToro, which allow global investments and are user-friendly like gaming platforms, are similar to cryptocurrency exchanges. However, there is still a significant disparity in user numbers. While this year has shown a positive correlation between cryptocurrencies and US stocks, cryptocurrency exchanges do not seem to have experienced the same explosive growth as platforms like eToro.

According to data from SimilarWeb, monthly website traffic: Robinhood globally increased from 9 million to 32 million from January to June, a growth of 255%. It surpassed Binance, Coinbase, and eToro in March-April, with 11.62 million more visitors than Binance after May. Over six months, eToro also grew by 53%. On the other hand, in the cryptocurrency market, Binance grew by 30%, while Coinbase only grew by 3.2%.

Furthermore, in terms of unique visitors, Robinhood ranks first (June: 2.62 million), with an 88% growth over six months. Coinbase, in second place, saw a 9% decline (June: 2.49 million), while Binance, in third place, grew by 22% (June: 2 million), and eToro experienced weaker growth globally at 9% (June: 1.87 million).

Translating this to Taiwan, the weakness of cryptocurrency exchanges is more apparent. eToro's successful marketing in Asia has also been effective in Taiwan, with explosive growth from March to June, reaching millions of visitors. Excluding Robinhood and Coinbase, which are unavailable or restricted in Taiwan, the traffic of the cryptocurrency exchange Binance is far behind the online broker eToro. Furthermore, Binance, the cryptocurrency exchange with the highest traffic, saw a staggering 68% decline in traffic.

From the results in Taiwan, it can be inferred that the majority of Taiwanese people who are willing to invest online without local legal protection are unaware or choose not to use cryptocurrency exchanges. Why is this?

Possible Reasons: Marketing, Storytelling, Volatility

Although it has been mentioned before that cryptocurrencies are considered commodities in Taiwan and not facing the illegal brokerage issues like eToro, there are still several key obstacles preventing cryptocurrency exchanges from being widely accepted by the public.

First is marketing. eToro heavily advertises on major social platforms in Taiwan like Facebook and YouTube. The famous "Steve and Dave" became popular through these advertisements, and its referral mechanism has led to many influencers actively collaborating, resulting in many tutorial videos on YouTube. Additionally, its high referral bonuses, where both the user and the invitee receive a $50 bonus (withdrawing $5), have attracted many users to invite friends using referral codes.

https://www.youtube.com/watch?v=khMkrSjDmYc

On the other hand, cryptocurrency exchanges face natural barriers on Facebook and YouTube in advertising. Although the review policies are gradually easing, they are still unfriendly towards cryptocurrencies. Moreover, international exchanges popular in Asia are mostly of Chinese origin, favoring closed community marketing methods (KOL groups, offline events), making it challenging for the general public to engage. Compared to eToro's high referral bonuses, cryptocurrency exchanges offer lower amounts, focusing more on commission rebates after new users start trading, which can accumulate significantly.

Next is storytelling. Online brokers like eToro have more relatable assets for the general public, with stocks and currencies tied to real industries, global events, and daily life. Users who are not well-versed in technical analysis or financial news are influenced by daily news and are more likely to engage in investment activities. For instance, the stock market drop in the US due to the pandemic attracted many retail investors to buy low, as they recognize these prominent companies and believe in their price recovery. When online brokers eliminate account opening fees and commissions and make trading as easy as playing a mobile game, these investment assets naturally attract more users.

However, cryptocurrency stories mostly revolve around visions, technological advancements, and industry collaborations. Understanding these visions requires knowledge of blockchain basics (why is the technology reliable?), cryptocurrency economic models (how to give tokens value?), and applications (e.g., understanding the flaws of traditional payment systems, current internet shortcomings). This information alone can deter most people, especially when many cryptocurrency companies lack actual profits and complete products, making it challenging for individuals to assess their value. Furthermore, cryptocurrencies have multiple functions; they are traded as stocks, currencies, and tokens for exchange services.

Nevertheless, the simplest story both eToro and cryptocurrency exchanges share is: "It will rise, buy and you'll be right."

Lastly, let's discuss volatility, a topic that has been widely discussed in the context of cryptocurrencies. We interviewed a longtime eToro user who, despite the platform offering cryptocurrencies, had never bought any. He mentioned that he was only interested in researching US stocks and found eToro's interface convenient to enter the market. He believed that the volatility of cryptocurrencies, impacted 24/7 by policies and international events, leading to extreme price fluctuations, making it challenging for retail investors to profit in the long run.

This year, many cryptocurrency investors may refute this argument, with even Ethereum founder Vitalik stating that traditional stock markets have been more volatile than cryptocurrencies recently. However, the round-the-clock trading and global news dynamics in the cryptocurrency market do bring considerable stress to investment audiences. Additionally, the overall market value is still relatively small, and artificial operations and false trading volumes are prevalent, posing challenges for honest investors.

The Experiment is Still Ongoing...

Comparing online brokers to cryptocurrency exchanges may be overwhelming. However, as profit-seeking institutions, cryptocurrency exchanges will undoubtedly want more users to join. The challenges mentioned above rely on these evolving cryptocurrency and blockchain companies that are still experimenting to provide more practical outputs and benefits.

Investors and speculators, driven by ideals or profits, are experimenting in the cryptocurrency market in a faster, more convenient, and decentralized way until a successful experiment emerges.