The stock market and cryptocurrencies have some stark similarities between them – mostly pertaining to public behavior towards these segments.
For those savvy or brave enough, the stock market has historically proven to be an interesting and potentially rewarding medium of money management.
Some have made millions through the stock market and others have gone bankrupt, but it’s design and earning potential has proven alluring to those with sufficient means for decades. Stocks have been alluring to those without sufficient means as well, penny stocks sing a siren song that many with dreams of quick riches fail to resist.
By investing in either private or public companies, traders can reap the benefits if those companies succeed, with a portion of the revenue being distributed amongst shareholders.
Now replace the mentions of the stock market with cryptocurrencies in the above scenarios.
That is what we meant.
Similar to the stock market, the success and demand for cryptocurrencies dictate their value, as well as providing an added degree of liquidity.
Cryptocurrencies can not only be held like stocks in hope that they will increase in value but can also be used as a form of currency to purchase digital and physical items.
Originally, cryptocurrencies were purchased through a network of owners in a user to user sale setting. Most of these dealings happened in web forums on the internet, with the deals sometimes eventually being executed in person.
But as the popularity and applications for cryptocurrencies continued to grow, this method of transacting cryptocurrencies also changed significantly.
Now, primarily dealings are executed through exchange applications dedicated to cryptocurrencies.
While most of the trading takes place through exchanges that originated as profit-driven businesses, one subversive application took note of the trend and branched out of its original business segment to revolutionize cryptocurrency trading.
We are talking about Robinhood, a brokerage founded solely to make the trading experience as simple as possible for the everyday user. It has garnered significant awareness and the popular stock trading app now also deals in cryptocurrencies as well.
Robinhood Review: What Is Robinhood?
Robinhood has been a stock market tool that has been available to the public for over 3 years now.
As of February 2018, it also added compatibility for investing and trading cryptocurrency in a commission and fee-free exchange platform.
Robinhood was founded in 2013 by Baiji Bhatt and Vlad Tenev as a mobile platform for buying and selling stocks. The firm has an interesting story of how it came to be.
The founders of the business were not able to acquire funding quickly, they had to go and pitch their idea to more than 70 investors. They finally found a few venture capital folks who saw the vision of the company and made an investment. Robinhood even counts celebrities such as the widely known American rapper Snoop Dogg as one of their financial backers.
The application was finally was released to the public in 2015 and has since amassed a user base of over 3 million people.
One of its most attractive features is its commission-free and fee-free business model, drawing upon a pool of investors which collectively have contributed enough to value the company at over $1.3 billion. They have raised their latest round of capital in May 2018 to ensure that their application retains funding while maintaining their cost-efficient model.
Originally marketed as a mobile platform for trading conventional securities such as stocks and ETFs, it has recently entered the world of cryptocurrency allowing users to buy, sell, trade, and exchange crypto on the go through their mobile device – and its users are here for it.
The sheer level of interest in the relatively newer offerings on Robinhood can be appreciated by how the platform started to get registrations of over 200,000 per day after the launch of its crypto services.
What Makes it So Popular?
The one number one point that makes it amazing is that it is free. That’s right. It costs you nothing, nada, zilch to trade traditional assets and now digital assets as well.
This simple fact caught the eye of many. Instead of having to pay more than four dollars per transaction on competitors like Fidelity or Scottrade, individuals could trade the low price of zero.
With Robinhood you did not need to account for the charges that would eat away at your profits, you could trade and know that you kept as much as possible.
One of the other shining features of Robinhood is its ease of use.
The application is straightforward and allows users to immediately begin buying and trading stock, ETFs, and cryptocurrencies without a minimum amount of money stored within the app in the form of a portfolio like many other investment platforms do.
The app is linked directly to the users’ bank account allowing them to easily use their money to quickly start buying the securities they are interested in.
The layout of the application is simple and intuitive, permitting the everyday layman to use it effectively just as easily as someone who trades for a living. Its simplicity comes with drawbacks as well that a more seasoned trader might find less appealing.
The platform does not provide for customization of their charts or information and there research hubs and other sources of information on the respective traded companies are non-existent. Yet, this makes a lot of sense, Robinhood is targeting a wide base of novice customers, seeking to bring in a wide audience.
The application also offers a premium subscription option titled Robinhood Gold for more serious users which allows for functions such as extended-hours trading and being able to trade on margin. This service requires a $2000 minimum account balance and starts at $6 per month.
For the average user, however, these differences are negligible, and the lack of transaction fees makes it easy for common users to save money while trading.
Robinhood makes profits through Robinhood Gold subscriptions as well as the collection of interest on the cash and stocks in customer accounts.
However, Robinhood is deliberately making minimal profits to propagate for cryptocurrency trading through the newly launched service.
How Does Cryptocurrency Trading Work on Robinhood?
Launched in February of this year, the ability to trade cryptocurrencies is a significant leap in the application’s capabilities.
The application allows for tracking and purchasing of many different cryptocurrencies, including many of the most popular digital assets.
As of this moment, it only supports the purchase and sale of Bitcoin and Ethereum, but that is scheduled to change as the app grows.
However, as Bitcoin and Ethereum are the most popular and widely used currencies available at the moment, the app effectively opens the door for the regular investor to enter the world of digital currency.
The current list of cryptocurrencies available to be tracked and scheduled to be added to trade includes:
- Bitcoin Cash
- Ethereum Classic
- Bitcoin Gold
The World is Not a Perfect Place, Is it? What’s the Catch with Robinhood?
Despite the opportunities that Robinhood offers, it also has some defects.
First, the crypto service is only offered in four US States: California, Montana, Missouri, and Massachusetts.
This leaves the vast majority of the US unable to take advantage of the app, limiting its utility. The good news is that they will be expanding to other states over time.
Secondly, the apps designed as a purely “investment platform”, which means that you can’t actually access your cryptocurrency.
The app does not provide an internal or external wallet, thus hindering the ability to use the cryptocurrency supposedly owned. This means the fact that Robinhood will act as a custodian of your crypto funds similar to Circle.
When purchased, one can then monitor the fluctuations in price and value of the cryptocurrency over time but are forced to sell it and have the funds transferred to their bank account if they wish to use it.
While the company intends to include the ability to access coins in the future, the current design is impractical for those wishing to own and use the currency they acquire.
Third, in order to see any true profit from any investments, you are forced to sell and withdraw the investments to your bank account.
While the app does not charge any fees for this, this action would require payment of the capital gains tax, making an easy exchange of crypto to physical currency slightly inconvenient.
Lastly, one major speculative drawback with Robinhood is the aspect of privacy. There have been some concerns about other aspects of how it makes money. It is noted by some that Robinhood makes money in their traditional asset segment by “routing orders through Apex Clearing, Citadel, KCG, and Two Sigma.”
These data of a significant number of these orders can be used by these other firms to make their own moves in the market. These moves might or might not pose a disadvantage to the individual consumer (you).
This process is not confirmed but it is a possibility, if so, it might be of relevance as larger financial institutions also jump into the cryptocurrency space as well.
If you have not noticed so far, the pattern with the Robinhood is the provision of convenience. The company caters to millennials, has compelling marketing, keeps things very simple, light, and very friendly.
Their convenience comes at a cost. Customization, a lack of ownership of crypto assets, no research tools and other aspects that may be important to other investors are not present.
Their approach has worked in their traditional assets segment and will have a significant impact for the crypto trader as well.
How to Sign Up on Robinhood?
Robinhood crypto services are currently only available to US citizens. So, you can only sign up with the service if you are a US citizen who resides in one of the four states that have been mentioned above.
In order to sign up for the service, any individual who fulfills the aforementioned criteria can use Robinhood’s web app or download its mobile app on their iOS or Android powered device and submit their application for registration including their identification information.
According to Robinhood, it gets back to applicants within one business day after receiving their application. This is where the service informs potential users whether their application has been approved or if it needs any further details to be processed.
Afterward, once the requirements are met, users can start trading on the app by linking their bank account to it. Funds can be transferred fairly easily as well.
Since the interface is quite simple to navigate, it does not pose any challenges to even the most novice of cryptocurrency users. If you know how to browse the internet or work your way through an app, you should be fine while using Robinhood’s services.
Once again, what really sets Robinhood apart is its ability to provide required solutions in an easy to operate manner, and that remains one of its unique selling points to the end user.
However, it still has a long way to go when it comes to certain aspects.
How Robinhood Can Improve Upon Its Business Model
Due to the similarities between cryptocurrencies and other forms of investment, it is not surprising that a service such as Robinhood has emerged to be in the running to be a primary cryptocurrency trading platform.
It is not the first company to allow for crypto exchange and investing, with other companies such as Coinbase offering similar services.
However, the fact that it is easy to use and charges no commission, fee or transaction fees Robinhood has proven successful in its strategy.
With that being said, if it is to succeed in the long run, it must allow for more flexibility.
In order to receive widespread usage, it is imperative that its access is expanded to more than four states, as its exclusive nature will only do it more harm than good in the long run.
Most importantly, however, it neglects one of the basic functions of cryptocurrency: usage.
While cryptocurrency is valuable as an investment, it performs many other functions beyond being a type of investment, namely its intended use as a form of currency.
Owning cryptocurrency is a fantastic first step, but being able to use it as a form of currency will become increasingly useful as more companies and services enact compatibility as a form of payment.
These detracting elements make Robinhood limiting in its abilities for now. But given that they are addressed in the near future, the app possesses great potential as a leader in the cryptocurrency marketplace.