On August 3, 2023, the Australian Securities and Investments Commission (ASIC) initiated legal action against eToro, a trading platform, over its contract for a difference (CFD) product. ASIC alleges that eToro used insufficient screening tests when offering leveraged derivative contracts to retail investors. CFDs allow buyers to speculate on price movements of various underlying assets such as foreign exchange rates, stock market indices, equities, commodities, and cryptocurrencies.
ASIC claims that the CFDs offered by eToro were “high-risk and volatile” and that the platform’s screening test was ineffective in excluding unsuitable customers from trading the product. The screening test was reportedly easy to pass, and clients could modify their answers without limitations. ASIC also criticized eToro for having a broad target market, allowing users with little understanding of CFD trading risks to participate.
The regulator further stated that CFD product risks were heightened when dealing with underlying assets, particularly with “extremely high-risk and volatile products such as crypto-assets.” According to ASIC’s allegations, between October 5, 2021, and June 14, 2023, nearly 20,000 of eToro’s clients suffered losses while trading CFDs.In response to ASIC’s lawsuit, eToro revised its target market determination for CFDs. The company assured that there would be no impact or disruption to its services and that it was considering the allegations raised by ASIC and would respond accordingly.
It is also worth noting that eToro faced issues in the United States, where it had to halt trading in four cryptocurrencies, including ALGO, MANA, MATIC, and DASH, following legal actions by the Securities and Exchange Commission (SEC) labeling the tokens as securities.
In June 2023, the US SEC filed lawsuits against Binance and Coinbase, alleging unregistered securities exchange operations and fund diversion. They accused both platforms of trading unregistered crypto assets. According to Glassnode’s report, after the SEC lawsuits, Ethereum’s price dropped by 8.2%, while Bitcoin’s price only decreased by 6.4%.
Additionally, the SEC’s lawsuit against Coinbase on June 6th caused panic in the market, resulting in increased withdrawals of Ethereum staking from the platform. Since the enforcement action, approximately 35,810 cbETH (Coinbase Ethereum staking tokens) have been redeemed, totaling around $65.7 million. As of now, the ASIC lawsuit against eToro has not affected any assets, and major assets are still in consolidation mode.