Why Did Robinhood Launch Cryptocurrency Trading?

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Why Did Robinhood Launch Cryptocurrency Trading?

Customers in five states, including California, Massachusetts, Missouri, Montana, and New Hampshire, may now trade cryptocurrencies on Robinhood’s platform.

The news was made last week in a blog post by the San Francisco-based business. It also launched a new tool called Robinhood Feed, which allows app users to monitor cryptocurrency news and debate price fluctuations. The functionality is presently accessible to a limited number of customers, and Robinhood intends to update its feed in response to user comments and input.

Why Did The Company Make An About-Turn?

In an interview with CNBC in October, the co-founder of the San Francisco-based startup, Vlad Tenev, dismissed the notion of introducing cryptocurrency trading on its platform.

“I wouldn’t say we’re expecting a major transition from stocks to cryptocurrencies,” Tenev said, adding that Robinhood does not expect the stock market to disappear anytime soon.

But three months later, he changed his mind. Tenev told CNBC that cryptocurrencies have become the “first step into investing and financial services for a big number of individuals” while announcing intentions to introduce crypto trading services.

“It’s becoming more evident [that bitcoin is] an investment asset,” he remarked. That choice proved wise, as Robinhood Crypto created a record-breaking waitlist of one million people within five days after its opening.

Since the beginning of 2017, cryptocurrency trading has surged. New investors have flocked to coin markets. Coinbase has much more customers than Charles Schwab and is by far the most popular bitcoin trading platform in North America. (Also see: Coinbase Revenue Exceeds $1 Billion: Recode.) The exchange also boasted 100,000 new users during the Thanksgiving holiday and reported a $1 billion profit in 2017.

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However, Robinhood’s entry into cryptocurrency is driven by client acquisition rather than profit. “We see this as an opportunity to broaden our client base and provide our customers with greater capabilities,” Tenev added.

He said that the company’s goal is to break even on the business. Robinhood currently boasts four million clients, and new users drawn in by the promise of rapid returns made by bitcoin dealers may subsequently switch into equities trading. During its most recent investment round in 2017, the firm was valued at $1.3 billion in private markets.

Will Robinhood’s Entry Change Crypto Investing?

Because Robinhood is only available in five states, initial trading volumes on its platforms are not anticipated to be huge. Compare that to Coinbase, which provides comparable services both locally and globally.

The largest impact that Robinhood’s arrival is likely to have is on trading costs. Robinhood intends to provide zero-commission trading services for bitcoin trading, similar to its stock trading platform. Users have recently chastised bitcoin exchanges for charging exorbitant withdrawal and transaction fees. (Also see: How Does Robinhood Make Money?)

Robinhood may also streamline the interface and trading platforms for cryptocurrency. Despite its increased volume, bitcoin trading is hampered by inefficiency and complexity.

Typical cryptocurrency trading platforms feature clumsy UI and ineffective cryptocurrency trading procedures. For example, users are needed to present various papers for account validation, which might take several days. They must swap between multiple cryptocurrencies when trading.

Robinhood has made stock trading easier for millennials and beginners to the equity markets. If it takes a similar user-centric approach to cryptocurrency trading, other exchanges will be obliged to follow suit in order to prevent consumer desertion.

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Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion by Investopedia or the author to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site. The author holds a minor quantity of bitcoin as of the day this article was published.

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