Digital currency exchange and wallet provider Abra has added new features to its app that allows people to invest in stocks, commodities, and exchange-traded funds (ETF) with bitcoin, according to a February 6 blog post by Bill Barhydt, the company's founder and CEO.
Starting today, users of the Abra wallet are now able to invest in popular stocks such as Amazon, Facebook, and Coca-Cola. Users will also be able to use bitcoin to invest in commodities like oil, assets like property, and also foreign currencies, crypto, and ETFs.
According to Barhydt, Abra facilitates the trades and purchases using crypto collateralized contracts (C3). Barhydt explains how these contracts work:
"[I]f you want to invest $1,000 in Apple shares you will place $1,000 worth of bitcoin into a contract. As the price of Apple goes up or down versus the dollar, bitcoin will be added to or subtracted from your contract. When you settle the contract – or sell the Apple investment – the value of the Apple shares will be reflected in bitcoin in your wallet which can easily be converted back to dollars, or any other asset for that matter. When you enter into a C3, you're effectively creating a smart contract which automatically determines – based on the price of the Apple shares – whether you have made money or lost money. The underlying bitcoin collateral then adjusts itself accordingly to be equal to the value of the Apple shares."
But what happens when the price of bitcoin inevitably drops and the price of Apple goes up? Who is taking this financial risk? According to Barhydt, Abra absorbs these risks by hedging away their "risk on these contracts in the open market at the moment the consumer creates the investment."
An article in Forbes explains that this process has potential because Abra is not actually buying the investment assets for customers. According to Forbes, when a person invests in something such as Apple, they are simply "gaining exposure to Apple's price action" while on the backend, Abra's systems conduct "cost-effective-trades" and investments, ensuring that Abra has the funds to pay investors upon the sale of their stock. Barhydt told Forbes:
"[I]n the case of stocks, there are instances where Abra may be buying the stock, but we're not buying it on behalf of the consumer, we're buying it on behalf of Abra in order to eliminate any risks on being able to make the consumer whole if they're in the money on those contracts."
Although this method requires customers to trust that Abra has enough funds to cover their investment gains, Barhydt assured Forbes that Abra's hedging process has proven effective: "Abra has done this with close to a billion dollars in transaction volume and made every consumer whole on every single transaction in over 100 countries."
According to the blog post, Abra developed these new tools so that people living in countries without access to stocks and mutual funds via online brokerages could have the same investment opportunities afforded to those who do. Abra also hopes this one-stop investment shop will simplify the process and encourage more people to participate in the stock market.
Abra is currently available in 155 different countries and offers trading in 50 fiat currencies and 30 digital currencies.