How Did Robinhood App Entered the Cryptocurrency Market?

Robinhood is one of the most interesting trading apps for stocks and, since some months, also for virtual currencies. According to reports from TechCrunch on September 6, Robinhood is working in order to launch an initial public offering (IPO). This is one of the reasons why the company is searching for a chief financial officer (CFO).

Baiju Bhatt, Robinhood CEO, informed that the company is working so as to be compliant with the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Robinhood was able to raise $363 million dollars in a series D funding round. At the same time, it gathered $110 million dollars in a series C round. After it the platform was valued at $5.6 billion dollars, becoming the second most valuable fintech start-up in the United States.

According to Business Insider, Robinhood is known as the ‘trading app for millennials.’ Before entering the crypto market, the app offered stock trading for users. It has a plain, simple and user friendly design. Additionally, it offers the possibility for users to deposit small amounts of money and a zero fee trading for stocks.

The official website reads as follows:

“We believe that the financial system should work for the rest of us, not just the wealthy […] We’ve cut the fat that makes other brokerages costly, like manual account management and hundreds of storefront locations, so we can offer zero commission trading.”

However, there are some limitations. Users cannot short, sell or trade mutual funds. Indeed, the prices are displayed in a very simple way and the graphics are quite simple.

The applications for smartphones were launched back in 2015. But now, Robinhood offers trading from desktop as well. At the moment, the company does not have a publicly available API, but is working to provide it in the future.

Robinhood uses a special business model in which it allows its users to trade virtual currencies and stocks without having to pay for fees. The company invests uninvested cash in customers’ accounts.

Additionally, Robinhood receives an important income from margin trading. That is, lending money with interest to owner of Robinhood Gold accounts. In order to access these margin loans, the user need to pay a fee every single month. The fees start at $6 dollars per month for an additional $1,000 dollars’ loan. The price rises as the loan amount increases. For $50,000+ loans it is necessary to pay $200 dollars.

At the beginning of the year, in February, Robinhood decided to launch its no-commission cryptocurrency trading division. At the beginning it supported Bitcoin (BTC) and Ethereum (ETH) trading for U.S. residents in California, Massachusetts, Missouri, Montana and New Hampshire. Later in July, the company added support to Litecoin (LTC) and Bitcoin Cash (BCH). Two more currencies were added later, Ethereum Classic (ETC) and Dogecoin (DOGE). As of today, Robinhood is available in 19 different states.

During the first four days since the announcement, the platform had 1 million users registered on the platform.

The company’s co-CEO, Vlad Tenev, explained:

“We don’t intend to make very much money on it all for the foreseeable future […] We intend to operate it as a breakeven business […] The thinking behind that is what we’re really doing is building an ecosystem. Right now the products are investing products, so crypto slots in very nicely alongside the 10,000 plus other instruments that people can trade.”

Users can buy and sell cryptocurrencies on its platform, but it is not possible to transfer the funds to a third-party wallet or service.

Nonetheless, in June, people familiar with the platform informed that Robinhood was planning to launch a cryptocurrency wallet. Indeed, the company was searching for a ‘multiskilled’ cryptocurrency engineer. Furthermore, Bloomberg reported that Robinhood was planning to obtain a banking license after talks with the U.S. Office of the Comptroller of the Currency.

The rumours about Robinhood creating a cryptocurrency wallet spread all over internet. Some media outlets suggested that Robinhood could severely damage important market leaders such as Coinbase.

Baiju Bhatt expressed important ambitions. He said that the company expects to be one of the largest cryptocurrency platforms in the market. And the business that is being carried out by Robinhood has been supported and backed by Sequoia Capital. Andrew Reed, Sequoia partner, said that Robinhood has the potential to bring its low-cost and user-first approach and revolutionize the financial services industry.

Of course, the platform received critics from different investors and experts in the field. The trading platform seems to be designed specifically for small accounts and bigger investors are not included in the company’s plans.

In addition to it, Fortune magazine informs that Robinhood is still losing money for the services they offer. Investors in IPOs may accept losses as long as they bring future profits. According to Fortune, companies such as Groupon and Uber had to change their investment plans due to the fact that they were not registering profits.

There are other experts such as Theresa W. Carey that says that venture capitalists want return on their investment. Robinhood has an intrinsic problem which is related to the fact that they do not take fees for trading activities. However, free trade is Robinhood’s key feature, without it the platform may lose the number of users it now has.

Most of the cryptocurrency enthusiasts and users like the application and they are waiting for it to expand to new places around the United States and the world. Some established players in the market have very high fees, something that damages the entire community and ecosystem. The market is open for new competitors and Robinhood is doing a great work to take an important share of the market.

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