Abra wallet and cryptocurrency exchange now offers its users a range of cryptocurrency-collateralized assets, such as assets based upon Apple, Netflix, Vanguard Growth ETF, and other popular securities. Abra has been quick to pat itself on the back, stating that it is making Western-centric securities available to the rest of the world. And in some ways, this is true. However, when we look a little deeper into what “Crypto-Collateralized Assets” actually are, we see that users should be cautious investing this way.
Basically, a Crypto-Collateralized Asset is a kind of CFD (Contract For Difference), with Bitcoin used for trading. CFDs are investment contracts on offer from online brokers like Plus500. Rather than selling real shares of companies like Apple, brokers of this nature allow users to make price speculation contracts on any given security (i.e. kind of like a bet). If a person buys a contract for Tesla stock, they’ll pay the present value of Tesla stock, then be able to sell the contract back to the company at a future date.
If the price of Tesla, in this example, was higher at the time of sale than it was at the time of purchase, the broker would give the investors her money back, plus the difference. In the end, the user would have the same amount of money they would have had if they had actually bought and sold Tesla stock, without having had to pay the fees and wait the time necessary to actually do so.
The question is: will crypto users buy ETFs and Stocks on a cryptocurrency investment platform? (Source: Beneath blue/Shutterstock.com)
Abra now offers this model to its users, the difference being that contracts are settled with Bitcoin BTC and Bitcoin Cash, not US Dollars. Like CFD brokers, Abra will make its money “on the spread”. The “spread” is a range of prices above or below which an asset’s price must pass before Abra will pay out. This means that it’s not enough for a security’s price to increase; it must increase above the spread for a user to make money.
This CFD-like model isn’t bad or inherently unethical, but it’s important for users to understand that this is not the same thing as investing in real securities. User won’t own stocks or ETFs. They’ll just be making bets (let’s call it what it is) on the price of these assets, just like you’d make a bet on which horse might win a race. Plenty of people have lost money this way, and the odds are stacked against the user. A sign of industry development? We think not.
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