eToro has come under fire after halting margin trades at the height of the Bitcoin Rush rally.
According to a January 12 report in the Wall Street Journal, European eToro users were informed with just four hours notice that margin trading on the platform would cease on Friday.
EToro users were informed in an email sent at 4:46 UTC on Jan. 8 that they must increase their margin collateral to 100 percent. The platform closed the contracts of all European crypto traders who did not increase their margin collateral to 100 percent by 9:00 PM.
When the company stopped trading on the margin, the users‘ cryptocurrency was automatically converted into US dollars
Amy Butler, a spokeswoman for eToro, said „most traders were in the black“ when margin positions were closed. The Bitcoin price at the time was almost $ 42,000.
However, Fordham University law professor Jurij Toplak warned that eToro users who want leveraged crypto products could miss out on future profits. He said :
„This threatens a lot of losses for the user. These are future losses: If Bitcoin now rises to 70,000 US dollars, the user has no way of getting this money.“
eToro users looking to take short positions at the peak would also have missed a significant profit opportunity.
Other traders have highlighted the potential impact of this short-term change to eToro. Twitter user Phill Gallagher claimed to have received the email notification of margin trading at around 2:30 a.m. local time. He explained:
„That creates a big tax problem that could have been dealt with with a little notice. Very unprofessional. I’m going to look for a new trading platform now.“
On the same day, the platform also temporarily quadrupled its minimum deposit requirements . The reason she cited was an „unprecedented demand“ for her services from new users. eToro recently claimed that 200,000 new accounts were registered in the first week of January. This resulted in daily crypto volumes that exceeded the 2020 average by more than ten times.
Many crypto Twitter users criticized eToro for raising the minimum deposit, saying the move would primarily affect novice traders.
„I’m not sure that this is a good idea,“ said Twitter user evertmulder85. He added: „This is an entry-level platform. The great thing about it is that you can start small. $ 1,000 is not a small amount.“
eToro is rumored to be planning an IPO in the second quarter of this year. The company reportedly „doubled its sales to $ 500 million“ and gained five million new users in the past year.