Robinhood’s entrance into the cryptocurrency market made large waves throughout the industry. Offering no fee trading and a slick mobile app, Robinhood was already well known for their conventional stock offerings. Seen as the ‘millennial’ solution to traditional trading systems like E*Trade, it appeals to a younger crowd that might otherwise avoid investing in stocks entirely. A recent study showed that most millennials see Bitcoin as a more stable investment than traditional stocks – which makes their addition of cryptocurrency a solid choice.
Now, Robinhood is looking to go public. Part of this process is adhering to some extremely strict guidelines set by a variety of financial regulatory bodies. The SEC and FINRA are both in close contact with the development team as they move forward – bringing a new vector for wider cryptocurrency adoption.
Earlier this year, Robinhood began a staggered roll-out of their cryptocurrency trading system. After establishing a wait list, they opened the service to users on a state-by-state basis. Due to the patchwork nature of cryptocurrency regulation, each state has different requirements and associated time commitment to ensure that the app is fully compatible. Mimicking Coinbase, Robinhood began with simple offerings – Bitcoin and Ethereum. As of July, they’ve expanded this to include Litecoin and Bitcoin Cash. Alongside these four tradable currencies, they’ve established a full list of the coins that they are interested in adding.
The major drawback to Robinhood’s cryptocurrency module lay in the inability to transfer. Users do not directly own the cryptocurrency purchased – instead, it is held by Robinhood in their stead. This means that users cannot transfer those coins or tokens to another wallet. While this initially soured many veteran crypto-enthusiasts, the app’s ease of use attracted a new class of investor that wanted the ability to trade in crypto without the associated hassle.
Robinhood’s Business Model
There has been much confusion about just how Robinhood turns a profit. As other services hold fast to percentage or flat fees, Robinhood’s service is completely free. Instead, they make money off of the interest accumulated by held funds. Further, their subscription services bolster this profit stream. Combined, the two make for a sustainable business model that completely disrupts the stock trading industry.
Investors are hungry for easier methods of stock trading, with Robinhood already surpassing E-Trade’s own user count. It remains to be seen if the development team can navigate the intricacies of an IPO – but their lightning-fast rise to prominence and unique crypto offerings make them an attractive outlier in the financial market.
By: Adam Stone