On Wednesday, Abra said its app will use the Bitcoin blockchain and smart contracts technologies to support fractional investments in stocks and exchange-traded funds (ETFs). Abra already offers the ability to “invest” in 50 fiat currencies and over 30 cryptocurrencies. [This app is also very bad and we really love talking about it.]
On their website, Abra announced “We’ve added traditional assets to the Abra app!” But are these really the name-brand offerings from “Apple, Amazon, or a gold ETF” they are claim to be? Not quite. We’ll explain.
Abra has only about 500,000 users across more than 100 countries. That’s compared to 4 million on the crypto/stock app Robinhood. It’s important to note that this announcement only means users can sign up to get offered stocks. Companies like this usually make flashy announcements without a product to ship in order to goose their numbers. So if Abra decided to be all bark and no bite, it wouldn’t be the first.
We want to live in a world where we can buy a beer at the bodega with crypto. But it is okay with us if we first get to the point where we can get super-low fee stock trades.
In the past, Modern Consensus communicated openly with Abra and other “invest in crypto” apps about their misleading terms. Many of them advertise themselves as the best way to “buy” cryptocurrencies like XRP and ether. Most would assume that if they “buy” something that they own it. But then users can’t send the currency to a friend or use their Litecoin to buy beef jerky unless both of them are on Abra.
This time Abra has carefully chosen their language: “Abra users will have the ability to gain exposure to stocks like Apple, Amazon, or a gold ETF, right from the app” [emphasis ours.] But exposure isn’t really the same thing as ownership. Exposure just means that if you get some Apple “stock” in the Abra app you are able to lose money when that stock goes down.
Exposure doesn’t mean you can go to shareholder meetings or leave your shares to a favored nephew when you die. You can’t even add them to an existing portfolio. Exposure in a single platform is a bit like hoping that when your grandfather dies that you get a call from Bed Bath & Beyond saying that he left you $500,000 but entirely in store coupons.
As for their promise to “use the bitcoin blockchain and smart contracts technologies to support fractional investments” part from before: doubtful. First of all they use the small “b” bitcoin. Which could be anything from Bitcoin Cash, BitcoinGodl, BitcoinSV. “Smart contracts technologies” usually come from Ethereum or EOS. But writing and agreeing to a smart contract aren’t a part of the Abra ecosystem.
They say that every investment position is stored on the “bitcoin blockchain”. This means Abra doesn’t have to hold any assets on behalf of users, which means it isn’t regulated as a brokerage or exchange. That skirts so many existing securities laws it’s ridiculous. But it means they can offer its services worldwide.
It’s unlikely that Abra is doing any of this work on the blockchain themselves. Several companies, such as DX.exchange in Estonia,TK are working on how to tokenize stocks and ETFs. It is difficult now for small dollar investors to buy just a tiny piece of Amazon. But with tokenized investments it would be possible to buy and sell shares in a simple app, such as Abra.
That’s what is the most likely and the one we are most skeptical of and that’s mostly from our past experience with Abra.
When we went through the Abra app during the height of the cryptocurrency boom in December 2017, we noted that it was surprisingly hard to make a dollar—even while Bitcoin doubled in price in one month. One of the reasons was that Abra played around with their buy and sell prices to customers in order to make a profit. Think of it like the money changers at the airports. On your way in, they offer you a great price and no fees. But when your, say, ether shot up in value and you wanted to sell, they were less likely to cut you a deal.
When you buy a no-fee fund in Vanguard, for example, the price it costs is the price you pay. When it goes up you can reap the benefits. Will Abra honor a fair market like that and give their usual no-fee trades? We don’t know. And they stopped returning our emails after we called them, “The App Version of a Sh*tcoin.”
But we do know they are coming. A company statement promises, “These new offerings of stocks and ETFs will be available alongside the cryptocurrencies and fiat currencies already available on Abra.”
By comparison, competitor Robinhood offers stocks and crypto. The only thing is that when you “buy” a stock, they send your transaction through a hedge fund and you come out owning stock. Their kep advantage in this arena is that hedge funds trade their own client accounts in a “dark pool” which matches each trade to a buyer outside the traditional market.
It’s refreshing that Abra would try a different route. If Abra could provide tokenized assets with an open market value it would be really onto something.
“This is just the next step in our larger vision of providing a full array of financial services.”