Two in five retail investors think global stock markets are in bubble territory, but think a crash is unlikely and appear to be happy to keep buying equities, according to a new survey.
Retail investors believe inflation is the biggest threat to their portfolios, a survey published by trading app eToro found this week.
Polling firm Opinium carried out the survey for eToro and spoke to 6,000 retail investors across 12 countries, including the UK and US, who did not have to be eToro users. It gives a sense of how amateur investors view markets as economies recover from the pandemic.
Although 40% of retail investors said equity markets are in a bubble, 15% said they are fairly valued or undervalued. Another 45% said they neither agreed nor disagreed that they were overvalued, suggesting some uncertainty about the future path of securities. A bubble is typically seen as a moment when stock prices rise rapidly and are higher than justified by fundamental factors such as the health of the economy.
A considerably lower proportion of retail investors think stocks are about to crash than think they are in a bubble, however, with 27% predicting a sharp drop before the end of the year.
Stocks have soared since the pandemic-induced crash of March 2020, especially in the US. The benchmark S&P 500 has risen more than 90% since its March 2020 low, and US equities are regularly hitting record highs, even as the global pandemic continues.
“It’s worth remembering that while valuations are high, equities are currently cheap compared to bonds,” said Ben Laidler, global markets strategist at eToro.
“The fact that just one in four investors believe that another correction is due before the end of the year suggests that many of them are willing to carry on paying current valuations – for now, at least.”
Just shy of 40% of retail investors believe rising inflation is the biggest threat to their portfolio, eToro’s survey found. But that number rises to 51% in the US, where year-on-year inflation jumped to a 13-year high in June.
eToro found that traditional inflation hedges such as real estate were popular portfolio picks, while a large number of investors were keen on gold.
The average UK investor plans to increase their investments by 19% each month as COVID-19 restrictions in the country come to an end, extending the retail trading boom that originated during the pandemic, a Barclays Smart Investor survey found.
Across all age groups, only 6% of the roughly 2,000 people surveyed, said they planned to cut how much they invest each month. They cited the return of “normality” and the increased spending on activities such as holidays, meals out and weekend trips.
In contrast, around 50% said they would spend less on such activities to support their investing habits.
“The prediction that many will continue, or increase, the amount they invest going forward is likely driven by a rise in lockdown savings, with the ONS reporting that UK household savings are nearing an all-time high.” Clare Francis, director of Barclays Smart Investor said.
76% of those surveyed said they would maintain their investing routine and as few as 4% of those who began investing during the pandemic said they would stop once restrictions in the UK were lifted.
“Today’s findings show just how much the pandemic has changed our approach to saving and investing. As new investors flocked to the stock market last year, it was easy to assume that it was just a lockdown hobby, and that many would go back to their old spending habits when the world re-opened.” Francis said.
Retail trading apps and platforms like Robinhood and eToro, which allow individuals to invest in stocks and digital assets like crypto currencies via their phones or laptops, saw a surge in popularity throughout the pandemic.
Robinhood, which makes its stock-market debut this week, however noted a slowdown of activity on its platform in the second quarter of this year, which was when lockdown restrictions in many countries eased. In its updated prospectus published on Monday, the company said it expected revenue to drop in the three months to September 30 because of the decline in trading activity.
Dogecoin trading volumes soared 1,250% in the second quarter of the year on the world’s major cryptocurrency exchanges, according to figures compiled by Coinbase and seen by Insider.
The average trading volume for dogecoin shot up to $995 million per day in the April to June period, from just $74 million a day in the first quarter, as exchanges such as Coinbase, eToro and Gemini added the token amid booming interest.
Coinbase’s Q2 market barometer showed that ether trading volumes rose 53% quarter-on-quarter to an average of $3.25 billion a day on global exchanges. Meanwhile, bitcoin’s daily volumes fell 14% to $4.01 billion.
Cryptocurrency prices hit record highs in the second quarter before falling sharply as China cracked down on bitcoin “mining” and Elon Musk turned against the biggest cryptocurrency over its energy use.
Dogecoin started the year at around $0.004 but soared more than 15,000% to above $0.70 in May. It has since slid to around $0.18 on Friday. Bitcoin fell from a record high of $65,000 in April to Friday’s price of around $32,000.
However, the period may still have been a profitable time for crypto exchanges, despite the plunge in prices.
Overall global trading volumes rose 32% to an average of $18.82 billion a day in the second quarter, boosted by a 44% rise in volumes in Asia to $8.98 billion a day. Coinbase’s figures cover crypto-fiat trades, but not crypto-crypto trades.
Last week, Goldman Sachs analysts said in a note that “significantly elevated crypto asset volatility” could be good for Coinbase’s second-quarter earnings by boosting trading volumes and fees, Coindesk first reported. Just under 90% of Coinbase’s revenue came from transactions in the first quarter.
Yet, a report from CryptoCompare said trading volumes at the biggest crypto exchanges fell 43% in June as prices consolidated at a lower level and volatility dropped.
Holdings of meme token dogecoin vaulted above bitcoin and ether among eToro clients in the second quarter, according to data from the brokerage.
After cardano, which held the top spot in both quarters, dogecoin zoomed past the two largest cryptocurrencies by market capitalization to claim second place, according to a June 30 snapshot from eToro.
Bitcoin for the second quarter held the fifth spot, tumbling from second in the first three months of the year.
Ether meanwhile, held the fourth spot for the second quarter, also lower from the previous quarter’s third place ranking.
Consistently in the top five is altcoin tron, which was founded in 2017. Its native cryptocurrency is TRX.
The decision of eToro to add dogecoin trading to its platform only came in May this year, after much contemplation, according to Yoni Assia, CEO of eToro. He told Insider that it did not feel “sensible” to list the shiba inu-themed token at first due to its background.
Dogecoin, which started as a joke in 2013, has seen a blistering rally in 2021 even taking into account recent steep declines, thanks in part to well-known backers such as Elon Musk and Mark Cuban.
The coin was boosted this year by listings on numerous cryptocurrency exchanges, including eToro, Coinbase and Gemini. It was also named “asset of the year” by the billionaire founder of crypto exchange FTX.
Most recently, in an S-1 filing for its upcoming IPO, Robinhood revealed that the trading platform generated nearly $30 million in revenue from customers trading dogecoin in the first quarter of 2021 – a figure expected to have further ballooned in the second quarter when dogecoin’s price spiked more than 1,375%.
The rise of altcoins has been closely documented as bitcoin’s share of the total crypto market drops below 50% for the first time in three years. It stands at 43%, according to data from CoinGecko.
“People are looking at the broader universe of altcoins for alpha relative to the very crowded BTC trade,” Jack McDonald, CEO of fintech firm PolySign, told Insider. “While there’s an obvious correlation between BTC and the rest of the market, altcoins represent an opportunity to diversify one’s exposure.”
Buying and holding altcoins, especially those founded relatively recently, also show a greater trust in the ecosystem, Everett Kohl, founder of Dbilia.com, a company in the NFT space, told Insider.
For some, though, like Eloisa Marchesoni, co-founder and COO of Blockchain Consulting, investing in altcoins comes with more risks.
“Unless you’re taking profits as you go, you risk sitting on a load of dead or stagnant capital hoping they survive crypto winter and regain their price action,” she told Insider. “Historically just a few of them make it from one bull run to the next.”
So far, 2021 in markets has been the year of cryptocurrencies, retail trading and special purpose acquisition companies, or SPACs.
eToro is intimately involved in all three, with the global stocks and crypto trading app set to go public later this year through a $10.4 billion merger with the FinTech Acquisition Corp. V SPAC.
But to many amateur traders and crypto fans, eToro is known as a key supporter of cryptocurrency trading around the world. It made headlines when it added dogecoin to its offering in early May, a move which helped send the meme cryptocurrency soaring around 50% to an all-time high.
Dogecoin has a ‘large, loud, and funny’ community – and Elon Musk
Yoni Assia, the chief executive of eToro, which he cofounded in 2007, told Insider that the real question was why it had taken so long.
“Frankly, because initially dogecoin was invented as a meme or a joke, it felt, to us, not sensible for investment purposes.”
Yet Assia says eToro ultimately decided that the enthusiasm of dogecoin’s fans – not least Tesla boss Elon Musk – meant the coin had a future and was worth adding.
Dogecoin has “one of the largest, loudest and funniest communities in the cryptocurrency industry,” Assia says, adding that “a strong community is a very strong part of every cryptocurrency.”
He adds: “And one member of that community is quite unique on its own. And that’s Elon Musk.”
The Tesla boss has been one of the driving forces behind the boom in dogecoin, bitcoin and cryptocurrencies in general. A tweet from him can send assets soaring or plunging.
“When one member of that community is worth $180 billion, that really changes the dynamics,” Assia says.
eToro has recently added a spate of cryptocurrencies to its platform, on which people in the US and around the world can trade in digital assets.
Does it plan to add dogecoin copycat shiba inu coin, which has recently been making waves? “Unfortunately we do not comment on future listings on eToro,” Assia says, “but I would say that it does seem that shiba has a passionate community around it.”
The trading app tries to educate users on risk
Although dogecoin has a legion of fans, traditional financial analysts and regulators have warned speculators that they could get badly burned.
Trading apps such as Robinhood have come under fire from politicians for the “gamification” of trading and making it easier to bet large amounts on relatively unknown assets, causing many to suffer large losses.
Does Assia worry about this? “I am always concerned about risk management,” he says, “which is why we try to educate our customers.”
When bitcoin and other cryptocurrencies started crashing just over a week ago, eToro “educated our customers about diversification, which is the first and most important element of risk management and managing a portfolio,” Assia says.
Can the retail trading boom continue?
eToro is set to go public later this year through a $10.4 billion merger with serial SPAC-launcher Betsy Cohen’s company, called Fintech Acquisition Corp. V.
The trading app, which is based in Israel, has benefited massively from the boom in retail trading brought on by the pandemic, when low interest rates, government stimulus, and lockdowns combined to push people towards online investing.
eToro’s revenue grew 147% year on year in 2020 to $605 million. In the SPAC deal, the app was given an implied value of $9.6 billion.
A key question for potential investors is whether that growth can continue, justifying the lofty valuation, or whether the retail boom fades as economies reopen.
Assia argues that eToro’s international footing will be key to its expansion. It is predominantly focused on Europe but has customers in more than 100 different countries.
“There is little doubt in my mind that in 10 years, we are going to see several large fintech platforms that are catering globally to retail investors,” he says.
Key to eToro’s plans is a push into the US. It currently offers cryptocurrencies in the US but plans to launch stock trading in the second half of the year.
The app will eventually roll out a full suite of features in the US, including its “CopyTrading” feature in which users can copy successful investors. Assia says the most-copied user gets $150,000 a month just from being imitated on the platform.
“I think the opportunity is very big,” Assia says of eToro’s plans. “Generally we call 2020 the rise of the millennial investor. We weren’t expecting that to accelerate so much in 2021.”
US stocks trade higher on Friday as investors shrug off fresh data showing a surge in inflation.
The Personal Consumption Expenditures price index – a key measure of domestic inflation – gained 0.6% through April, the Commerce Department announced Friday, as American spending rebounded.
The jump is the largest single-month gain since 2008, in line with the median estimate of a 0.6% increase from economists surveyed by Bloomberg.
The PCE index also notched a 3.6% year-over-year gain, surpassing the median estimate of 3.5%
“This report puts the Fed in a really good place, inflation is up, but real yields are still low,” Jamie Cox, managing partner for Harris Financial Group, said in a statement. “This is basically a transitory sweet spot.”
In the digital asset space, trading platform eToro addedtwo decentralized finance tokens, Aave and Yearn.Finance YFI, to its trading offering this week, alongside crypto tokens Compound COMP and Decentraland MANA. DeFi has gained traction amongst crypto investors in recent weeks after having been long overlooked on account of its complex nature.
“Just get started” is Heloïse Greeff’s advice to first-time investors. A data scientist by trade, Greeff is also one of eToro’s most successful popular investors.
Since she joined the social trading platform in 2016, Greeff has amassed more than 20,000 “copiers.” This means users can invest their capital to proportionally mimic her stock portfolio. Greeff was the third-most copied at the time of publication.
This also makes her the highest-ranking woman investor on the platform.
And more people are investing; eToro told Insider that it added five million new users globally to its platform in 2020, and another 1.2 million in January this year.
Insider asked Greeff how she invests and why she thinks her portfolio is so popular. Here are the five main takeaways:
1. Greeff buys stocks based on the underlying technology, such as Blockchain, rather than for specific products.
Greeff’s portfolio comprises mostly high-performing tech stocks that have benefited from life moving more online during the pandemic.
But, rather than investing in companies for their end-user products, Greeff selects stocks based on the underlying technology and its potential for widespread adoption across industries in the future.
“I’m not that heavily invested in driverless cars or any of those buzzy trends at the moment,” Greeff said. “What I’m thinking more about is what the marketplace is going to look like for that driver who now has more free time.”
Greeff invests in companies that she thinks will be the best at capturing people’s attention. Blockchain, in particular, piques her interest. This is why she invests in cryptocurrencies.
“Cryptocurrency is a really simple way of introducing blockchain into society,” Greef said, citing the rise in the use of smart contracts in real estate and finance.
2. Greeff won’t sell her cryptocurrency stock anytime soon, and thinks Ethereum has more long-term value than bitcoin.
Greeff bought her first bitcoin in 2013 and plans to hold onto it for a while, despite recent market volatility.
“I’m not a speculator on cryptos,” she said. “I tend to keep them for slightly longer and just ride through the volatility.”
Asked whether bitcoin’s plunge this week caused her concern, Greeff said that the cryptocurrency is “a bit like a teenager right now. It’s not as established yet in what it should be doing for the market.”
However, Greeff prefers Ethereum.
“The underlying blockchain architecture which Ethereum runs on has a lot of potential to go way beyond a cryptocurrency,” she said.
3. She avoids “meme stocks,” and believes discipline and “small wins” are behind her portfolio’s success.
Greeff emphasized the value of taking a long-term, incremental approach to investing.
“I don’t tend to take very high-risk positions,” she said. “I tend to have moderate returns and just keep compounding that over time.”
Greeff’s maximum drawdown – a measure of the stock’s decline from its highest to its lowest value over time – is just 16% over the entire lifetime of her portfolio.
Greeff thinks that being honest and transparent with her copiers is behind her success on the platform. “I think it’s really just consistent performance, and I don’t over-promise anything,” she said.
“I’ve told people off from copying me when they are expecting massive returns,” she added – although Greeff’s portfolio delivers an almost 30% average annual return, according to her website.
4. Greeff thinks the pandemic has made it easier for women to start investing.
Only 15% of bitcoin traders are women, according to eToro’s data, but the company added new female users to its platform at a faster rate than men in December. The trading app reported a 366% rise in the number of women signing up compared to a 248% rise for men.
Greeff is not surprised.
“Technology has really enabled more women to invest, even though it is a male-dominated industry historically, because we’re now all sat behind a screen, it has kind of broken down those barriers,” she said.
Greeff said women have a reputation for being risk-averse when they invest, but there are advantages to this.
“For me, being a woman does not influence my tolerance to risk, but it rather influences my decision-making process,” she said. “I tend to take a bit more time to gather more information, to make sure that I collect all the data before I make a decision.”
“I tend to do my homework more,” she added.
5. She uses machine learning to help pick stocks, but also reads philosophy and monitors eToro’s social feed to predict cultural trends.
Social trading is Greeff’s side gig; she works as a clinical researcher at the University of Oxford, where she specializes in machine learning. These are skills she brings to her investing.
Greeff said her “bread and butter” is using machine-learning techniques to crunch complex data on companies, but this is not the main part of her investment strategy.
Instead, she picks stocks based on company reports, eToro’s social feed, and even by reading philosophy books to help predict cultural shifts. Greeff then applies machine learning to analyse good entry and exit points for those stocks.
“There’s no black box which makes the decision,” she said.
“I use the eToro social feed as a data point to get into the hive mind of what the long-term cultural trends are of the end users who will be likely using technologies.”
Dogecoin continued to defy critics – and gravity – on Friday, after major boosts from the world’s biggest cryptocurrency exchange Coinbase and its main hype-man Elon Musk.
Coinbase, which went public in a coming-of-age moment from the crypto world in April, said on Thursday it planned to start offering dogecoin trading on its app in six to eight weeks.
The exchange’s chief financial officer Alesia Haas told CNBC: “We want to offer all assets that meet our listing standards and we hope to be the place where you can come and trade anything that you want to trade.”
It followed moves by trading platforms eToro and Gemini to add dogecoin, fueling the rally earlier in May and showed the growing acceptance of the joke cryptocurrency.
But it was Musk’s latest tweet that powered the newest rebound in dogecoin, which had slipped considerably from all-time highs of above $0.70.
Musk has halted Tesla payments with bitcoin but has said he is looking for more eco-friendly alternatives. He tweeted on Thursday night: “Working with Doge devs to improve system transaction efficiency. Potentially promising.” Dogecoin promptly soared and was up 33% to $0.53139 on Friday morning.
Dogecoin’s rally earlier in May captivated retail traders and unnerved many traditional investors, who saw it as a sign of irrational behaviour spurred on by huge amounts of stimulus from governments and central banks.
Many bitcoin enthusiasts quickly became tired of the joke token stealing the crypto headlines.
Barry Silbert, founder and chief executive of the company that owns Grayscale, the world’s biggest crypto fund manager, announced his company was betting against the token and tweeted: “Okay $DOGE peeps, it’s been fun. Welcome to crypto! But the time has come for you to convert your DOGE to BTC.”
Billionaire investor-turned-crypto-evangelist Mike Novogratz admitted he had misunderstood dogecoin’s appeal. But he nonetheless told Bloomberg TV he thought it’s “very dangerous to be invested” and that it was a “retail frenzy” with no institutional backing.
Analysts have consistently warned dogecoin is a purely speculative asset, and is even more risky than the already highly volatile bitcoin.
But predictions that dogecoin will suddenly crash have so far been wide of the mark, with the token continuing to draw life from celebrity buzz and online meme culture.
However, there are plenty of obstacles ahead for dogecoin and the cryptocurrency world as a whole. Not least Musk himself, who is liable to sudden changes of heart when it comes to his enthusiasms.
Nic Carter, founding partner of blockchain investment firm Castle Island Ventures, was scathing about Musk’s claim to be working with dogecoin developers, suggesting they don’t exist.
He tweeted a picture of a man talking to a brick wall, captioned: “Elon working with the doge devs.”
Dogecoin jumped more than 26% to a new all-time high above $4.88 on Tuesday after trading platform eToro added the meme cryptocurrency, opening it up to its 20 million users.
The Shiba Inu-themed digital asset was also boosted by a break into Major League Baseball, with the Oakland A’s accepting dogecoin as payment for tickets.
Dogecoin was 25.9% higher as of 7.20 a.m. ET at $0.48547, having earlier hit an all-time high of $0.48813, according to CoinGecko.
The meme cryptocurrency, which was started as a joke in 2013, has soared more than 19,200% over the last year and 760% over the last 30 days. Its market capitalization stood at more than $60 billion on Tuesday.
Dogecoin has ridden the cryptocurrency wave, which analysts say has been driven by huge amounts of stimulus from governments and central banks during the COVID-19 crisis.
Celebrity endorsements have also been central to the rise of dogecoin. In particular, regular tweets from Tesla’s chief executive Elon Musk have helped support the asset.
But eToro’s decision to add dogecoin trading to its platform sparked the latest leg higher. The brokerage is looking to expand its offerings as it prepares to go public via a special-purpose acquisition company in a $10.4 billion deal.
eToro said it had added dogecoin due to strong customer demand, with millennial and Gen Z investors having warmed to the irreverent cryptocurrency in defiance of mainstream financial opinion. The exchange said its 20 million global registered users will now be able to invest in the token.
Optimism around dogecoin also grew after the Oakland Athletics Major League Baseball team said it had started accepting dogecoin as payment for tickets. Oakland A’s president Dave Kaval said on Twitter the team had already processed dogecoin transactions, which he said were the first in Major League Baseball history.
eToro sung dogecoin’s praises in a statement on Monday, saying it is “one of the fastest blockchain networks to transact on, thanks to its one-minute block intervals.”
But many analysts have warned potential investors to be very careful with dogecoin and other altcoins, arguing their lack of use cases and wild volatility make them highly risky investments.
NFTs are a pillar of the digital economy and could fundamentally impact our society, a report published by online broker eToro and The Tie earlier this week says. At the same time, bitcoin has the potential to destabilize the bullion market and become “digital gold” over the next ten years.
The report assessed the main influences on the crypto space in the first quarter of 2021, and found non-fungible tokens – or NFTs – and the state of the global economy, especially potential hyperinflation, were the dominant themes. In the last quarter of 2020, bitcoin had been the main factor.
Whether a damaging inflation spiral could develop is not clear, the report said. But it argues that factors such as increased money supply, the rally in the S&P 500 and the potential for asset bubbles are cause for concern.
For bitcoin, this means that it is unlikely to replace the dollar any time soon, but it does have the potential to disrupt other established assets, the report said.
“However, perhaps Bitcoin could destabilize gold in the next decade or so and be a modernized ‘hard asset,’ our digital gold for the new era,” it said.
For this to happen, investors would have to start prioritizing digital assets over physical ones and bitcoin would need to see its realized market value rise by 50% every year out to 2030, the report said.
“While these predictions seem far-fetched, it is incredible that bitcoin has even 2% of gold’s market cap after just ten years as a financial asset, when just a year ago, $50,000 seemed like a pipe dream,” the report said.
The NFT-mania of the last quarter shows how impactful crypto can be and that it has the potential to change the world, according to the report. NFTs themselves could also substantially impact society as more of everyday life moves online.
NFTs are unique digital assets such as images, or videos, that are based on blockchain technology. They surged in popularity this year, selling for record prices of more than $69 million in the case of one piece of digital artwork.
“As society becomes increasingly digital, there’s a need to cement ownership of digital work created and shared on the internet. NFTs solve the problems that exist within this space such as proof of ownership, uniqueness of digital assets, and scarcity,” the report says.
They are especially important to content creators who share their work online and are faced with digital platforms that profit from it, for example through advertising, which takes away from their earnings as creators.
“NFTs power a new creator economy where creators don’t hand ownership of their content over to the platforms they use to publicize it,” the report said.