Victoria O.Thu, Oct 21, 2021 6:15 PM
Robinhood Crypto Wallet: Review on a Recently Announced App
Robinhood is a financial startup that allows trading on the stock exchange. The company has a convenient and simple mobile application - Robinhood crypto wallets. Thanks to him, cryptocurrency trading became available to people who previously could not understand the financial Robinhood markets due to many complex and incomprehensible details. The main audience of the wallet is millennials. According to the company, the average age of customers is 31 years. And the most important advantage of Robinhood over classic brokers is the absence of commissions for trading.
CFD broker Robinhood appeared in 2013. The company immediately attracted attention with favorable terms. The firm does not charge a commission for trading stocks and using options. On robinhood.com it is also indicated that the cryptocurrency exchange does not provide for commission acquisitions. Today we will review this intermediary, consider the terms of trade and share real customer reviews. History Website robinhood.com launched only in 2017.
Until that time, Robinhood app worked as a universal mobile application. According to the review on the official website, the history of the company began at Stanford (USA). Its founders were roommates and classmates. After graduation, they moved to New York, where they began working in the financial sector.
Soon they decided that they would create something new - a broker that everyone could afford. A few years later, a Robinhood’s crypto wallets press release was held in Menlo Park (California).
Advantages of Robinhood wallet
- Trading stocks, ETFs, cryptocurrencies, and options without commission.
- The Cash Management account allows passive money to bring in a significant percentage.
- It is easy to get tax documents and important account information on Robinhood.
- It is very easy to open a brokerage account.
- Wallet offers access to cryptocurrencies, including Bitcoin and Ethereum.
- User-friendliness. Instant access to $1,000 on deposit.
- Fractional shares are open to many users.
- Reinvesting bonuses allows you to earn compound interest.
Disadvantages of Robinhood wallet
- Customer support is only available during Robinhood markets opening hours.
- Margin trading is disclosed only to participants with the Gold status.
- The training materials that will help investors are not limited.
- Crypto wallets have unlimited access to research reports without Gold status.
- Robinhood does not provide a technical crypto trading platform for analysis.
IPO: risks and plans
The main and, perhaps, the only disadvantage of crypto wallets is the practice of selling a stream of orders. Through the use of this business model, the broker attracts attention from government regulators such as the SEC and Congress. In addition, this wallet already had legal proceedings with the US Securities and Exchange Commission. If the US legislation begins to tighten against the practice of selling a stream of orders, then the broker may have problems.
Do not miss the fact that the broker's reputation was seriously affected by the incident with GME. Due to the high volatility of Robinhood's shares, trading had to be suspended. The official comment at that time was as follows: trading was suspended due to obligations and requirements for net capital. After that, Robinhood’s crypto wallets had to attract $3.4 billion of unscheduled investments, which helped to cover losses in the current situation. In short, Robinhood's business model is questionable.
The regulation of cryptocurrencies in the United States, which promises to become much tougher, will also not bring positive news for the broker, because it is considered friendly to cryptocurrencies.
Against the background of all this, it can be noted that the time for the IPO was chosen the most favorable. Financial markets around the world are growing, which is worth only the US IT sector. The number of individual investors is growing daily. There is a high probability that as soon as the flow of new investors returns to the previous channel, then Robinhood's revenue will become less.
Despite the risks, Robinhood’s crypto wallets plan to get a valuation of $35 billion, and the price per share will fluctuate in the range of $38 to $42. The company named such figures based on the last round of financing, where it was estimated at $30 billion.
The year 2021 started positively for Robinhood. In the first quarter alone, the broker's revenue increased from $128 million to $522 million. It should be borne in mind that following the growth of profits, losses also increased by $ 1.4 billion, which exceeds the same indicator for 2020 and is an absolute anti-record in the entire history of the company.
Based on the considerable losses of Robinhood, the following theory appeared on the network: financial markets remember the acceleration of the value of GME shares in January 2021. Due to the sudden "pump" of the value of securities, a wave of liquidations of short-sellers swept through the market, among which there were also Robinhood customers.
Soon, the management of Robinhood gave an official comment: convertible bonds contributed to the increase in losses. When convertible promissory notes were issued, the value of those shares that were pledged also increased, because their price became more than the borrowed amount. Thus, Robinhood suffered nominal losses that do not depend on the quality of doing business and the market situation.
To answer this question, it is important to distinguish between Robinhood Financial LLC and Robinhood Crypto — both are subsidiaries of Robinhood Markets, Inc.
Robin hood Financial is registered with the U.S. Securities and Exchange Commission. In addition, she is a member of FINRA, an American securities market control organization. The organization is engaged in checking and issuing licenses to brokers and creating an environment for transparent exchange trading conditions.
Investments within Robin hood Financial are also protected by the non-profit organization SIP, which returns investors their funds in case of bankruptcy of the broker. It is something of an analog of an insurance company for the stock market.
It is obvious that Robin hood has done a difficult job to ensure the security of funds, and Robin hood Financial can be safely called a reliable platform for investors.
How does Robinhood Crypto Differ from other cryptocurrency exchanges?
An instant deposit of $1,000 is not possible on all crypto exchanges. This means that Robinhood users are not threatened with a long wait for the transfer and constant delays, which are in the order of things on other exchanges. At the same time, they get a huge financial advantage, not missing the chance to buy cryptocurrency at a reduced rate and other crypto trading opportunities.
The second striking difference is that Robinhood is trying to reduce the risks of the high volatility of cryptocurrencies. To do this, a limit policy has been introduced. If at the time of the transaction, the cryptocurrency trading rate does not fit into the established limit, the operation will either be postponed or canceled.
In addition, unlike many other crypto exchanges, Robinhood supports limit orders. That is, if the Robinhood users set a certain price in special settings, the application will automatically buy or sell cryptocurrency when its rate is equal to the selected value.
Robin Hood on the contrary
According to Robinhood co-founder Vlad Tenev, the company's main income is a commission from market makers. It is thanks to her that Robinhood can afford not to take a commission from clients for trading. This system is called PFOF (payment for order flow) - payment for the flow of applications. It is used not only by Robinhood but also by American brokers E-Trade, Schwab, and TD Ameritrade.
When a company receives a request from a client, it does not immediately send it to the exchange, but first to market makers. These are large firms that act as sellers and buyers on the stock exchange. For this, market makers pay Robinhood a small percentage.
In turn, market makers execute the application in such a way as to make a profit beyond what they have already given to Robinhood. "We earn about $0.00026 for every dollar sold. That is, if you buy a share for $100, Robinhood will receive 2.6 cents from the market maker," Tenev explained.
Robinhood managed to make more money on this scheme than all its competitors. According to the New York Times, for every share sold, Robinhood earned several times more than Schwab in the last quarter. The difference was from 4 to 15 times. In total, Robinhood received almost $19 thousand. from crypto trading firms for every dollar on the average client's account, while Schwab is only $195.
One of the authors in an article about Robinhood on VC wrote: "As far as I remember, in the legends, RobinHood took money from the rich and gave it to the poor. When reading a startup, you can imagine this scheme as follows: take money from the poor, give it to the rich and receive a commission from the rich."
Despite the fact that Robinhood's practice of selling client applications does not go beyond the law, many condemn the platform for the fact that its methods are on the verge. In December 2019, the startup received a fine from the US regulator FINRA in the amount of $ 1.25 million. According to the regulator, the startup did not perform its mechanism of work in the best way: FINRA accused Robinhood that the company did not consider alternatives to find the best deals for its users, and focused only on existing partners who paid Robinhood for applications.
Gamification of investments
Trying to make investments "accessible to everyone," Robinhood focused on newcomers to the stock exchange. Therefore, the process of using the application is designed to be intuitive for unprepared investors.
Previously, after making the first transaction, confetti appeared on the user's screen — for this, the service was compared to a poker game. And the authorities of the US state of Massachusetts filed a complaint against Robinhood, accusing the broker of using gamification to attract new customers.
They attributed ratings, tips, alerts, and emojis that accompany the investor in the application to this process. Aggressively advertising its services, including complex tools, the broker did not provide protection for novice investors, the state authorities considered.
The company was reproached that Robinhood turned investments into a harmless game, although inexperienced investors subsequently found themselves in difficult situations.
Is Robinhood working on a crypto wallet?
According to Bloomberg, online broker Robinhood may launch a new wallet in the near future. The corresponding program code appeared in the beta version of the Robin hood app for iPhone.
Can I transfer my crypto from Robinhood to Coinbase?
Currently, the transfer of Robinhood cryptocurrency directly to the Coinbase account is not allowed. However, this means that additional steps will need to be taken to ensure the secure transfer of your cryptography to the platform you need.
Do you actually own Bitcoin on Robinhood?
No. You don’t. But that is typical of multi-wallet systems. And it’s also typical of sites that aren’t actually exchanges, and don’t make transactions on the blockchain.
What they do is, they have an allotment of various coins like DOGE, BTC, LTC, etc. When you buy and sell those coins on their system, it’s just entries in their local database. You own a share of the coins in that crypto wallet. But you do not have direct access to it
Can you cash out crypto on Robinhood?
No, Robinhood doesn't allow this. If you want to invest in bitcoin you should make an effort to purchase your own through crypto trading that gives you ownership.