- The crypto broker Voyager had 371% growth in membership in 2020 from the end of 2019.
- Its CEO explains why he lets investors trade Dogecoin and why he won’t set trading restrictions.
- He shares Bitcoin forecasts, tips on earning interest on cash in crypto, and three tokens to watch.
2020 was the year of the digital and online brokers, as retail investors flocked to investing and trading apps.
But this popularity has its challenges. Last week, users from the Reddit forum Wall Street Bets pushed up the price of GameStop and other small-cap stocks that had been heavily shorted by hedge funds. This created extreme volatility in the stocks challenged the capital requirements of many brokers, such as Robinhood.
The cryptocurrency broker Voyager experienced growth in trading grow five times larger in January after witnessing a 371% increase in membership last year, and the expansion isn’t stopping, CEO Stephen Ehrlich said.
One of the main drivers has been Bitcoin. As the price surged in December, there was a renewed interest in the asset, which can be bought and sold on the platform.
Then late last week, when Robinhood and several other brokers halted trading on specific stocks, retail investors looked to other platforms.
"We saw an amazing influx of customers come to our platform over a 72-hour period," Ehrlich said.
Voyager's goal is to simplify cryptocurrency trading. Retail investors can sign up in three minutes or less. But because of the current influx, there is a waiting list that is moving quickly, Ehrlich said. Investors can then start building out a portfolio from over 50 digital assets.
The platform has a deep pool of liquidity, which makes it easy for investors to trade in and out of cryptocurrencies.
Trading Dogecoin and regulation
The platform also gained interest as it offered trading in Dogecoin. The Reddit forum Satoshi Street Bets encouraged investors to buy into the asset after Robinhood halted trading.
Dogecoin is a cryptocurrency that was created as a joke and based on the popular "Doge" meme. Mike Novogratz, a billionaire investor and the founder of a crypto merchant bank, recently predicted the asset would fall to zero in the long run. But it also has some benefits, such as a fast blockchain and no cap on supply.
It's not up to Voyager to decide what investors trade, Ehrlich said, the platform is an agency broker.
"I'll leave the regulators to what the requirements are to do that," Ehrlich said. "I do believe in free and fair markets for all and let them trade whatever the investing public and trading public wants to."
Regulators had to step in with the XRP token created by the firm Ripple Labs. A Securities and Exchange Commission complaint accused Ripple of running a $1.3 billion unregistered offering with its sales of XRP, which the regulator deemed a security and not a cryptocurrency. Ripple has repeatedly denied this is the case.
"I think like every other US broker, we all made the safe assessment to follow the SEC guidance at that point in time," Ehrlich said.
There won't be restrictions in trading on the platform, Ehrlich said. And he isn't too worried about tighter restrictions on digital brokerages in the future.
Platforms like Robinhood have played an important role in bringing consumers back to the retail market, Ehrlich said, which had gone "dry" since the financial crisis until between 2014 and 2015.
A fringe event, such as the GameStop trading frenzy, might garner more attention from regulators. But it might also just be a case of applying existing regulation better, without unduly stifling trade, Ehrlich said.
Increased transparency
Perhaps Ehrlich is not afraid of regulation because the platform is already publicly traded. It files financial statements every quarter and goes through an audit every year.
It's a lot of hard work, Ehrlich said, but the transparency and process have been a real "value add."
"You can go to a lot of crypto companies today, and you can't see the financials. You don't know if they actually have the assets or not," Ehrlich said. "In our case, it's right there on our balance sheet."
The prospect of other companies, such as Coinbase, going public this year could be a positive for the industry.
"It's not a dark business. It's very much in the light," Ehrlich said.
Revenues and interest
The firm also aims to be transparent on payments. Many platforms have come under scrutiny for using a payment for order flow to enable zero-commission trading.
"We don't play that game," Ehrlich said. "We make our spread. We're open about it. We're transparent, and that's our model for the foreseeable future."
Voyager earns revenue through a spread. But if the firm beats the price on the trade, it will pass that price improvement back to the customer and take a small part of the savings.
This is the key ingredient, Ehrlich said, about 70% of the time it provides price improvement.
Customers also earn interest on over 20 coins at a time when interest on cash remains stagnant and near zero.
Bitcoin provides interest of 5.5%, while USDC, a stable coin backed to the US dollar that has no fluctuation and no volatility, provides 8.5% interest.
Cryptocurrencies to watch
With over 50 assets on the platform, it can be hard to know what to look for as a new investor.
Ehrlich said he didn't tend to pick coins but highlighted four that he liked:
1) Bitcoin
Ehrlich is a big believer in Bitcoin and bullish on the price outlook.
"We are definitely over $100,000 by the end of the year, could be $200,000," Ehrlich said. "But we still see an upward trend. Does that mean it's going to be a straight line up? Absolutely not. There'll be ups and pullbacks and, and we have a lot of customers that like to buy on those dips."
2) Ethereum
"I think the smart contracts are something that will change a lot of how a lot of businesses move going forward," Ehrlich said.
3) Dogecoin
Ehrlich thinks it's interesting to watch how the asset is more of a trading coin, he said. But some companies are starting to accept Dogecoin for payments, and it does work quicker than Bitcoin, he added.
4) USDC
"If I could put my money in an account and earn 8.5% interest that I know I can convert to $1 whenever I want," Ehrlich said. "That's a pretty compelling story."