New-age brokerage platform Robinhood is jumping into the cryptocurrency craze, declaring that it will allow trading in bitcoin and Ethereum’s currency starting in February, with more virtual currencies expected to be added shortly afterward.
The decision by the commission-free mobile stock-trading app, which was kicked off in 2015 and boasts it has attracted millions of users, puts the upstart in position to go toe-to-toe with the likes of exchange traded digital-asset exchanges including Coinbase, Bitfinex and others for market share in the rapidly growing crypto market.
Some market participants already are expecting that Robinhood, which is offering fee-free transactions in cryptos, similar to what it delivers in equities, could threaten Coinbase’s dominance in the U.S. and in particular among so-called millennial users, those born between 1982 and 2000.
A Coinbase spokesman wasn’t immediately able to comment.
“I expect that Robinhood will capture some of Coinbase’s market share immediately, particularly from small retail investors,” said Christopher Grey, chief operating officer of TransitNet, an enterprise blockchain-related company. “Coinbase charges absurdly high fees, especially for small transactions. Further still, most other popular platforms are offshore and have other risks beyond their often high fees.”
San Francisco–based Coinbase, which operates in two dozen states and overseas and has about 13 million users, charges clients an average network fee, which varies depending on the size of a transaction and whether users are utilizing digital wallets, bank accounts or credit or debit cards. (There are ways of circumventing those fees.)
Robinhood said it plans to kick off trading in digital assets, like bitcoin
, next month in states including California, Massachusetts, Missouri, Montana and New Hampshire. The Robinhood app already offers price-tracking tools.
Baiju Bhatt, co-founder and co-CEO of Robinhood, reportedly told Forbes that he hopes Robinhood’s zero-price structure “will systematically drive down associated costs for consumers in the industry.”
However, in the short run, it may mean that Robinhood faces significant outlays to draw new clients. Robinhood’s tactic so far appears to be an effective one. As of Friday afternoon, more than half a million people were waiting to get early access to its crypto trading platform, according to the company’s website.
“I am not sure how Robinhood will be able to afford to keep offering these trades for free at a large scale,” TransitNet’s Grey said. “It will be interesting to watch how this plays out as increased user demand puts pressure on the need for fees.”
Via email, Robinhood spokesman Jack Randall said the zero-commission trading platform intends to break even on its crypto service but believes that the offering is a good way to expands its user base, which currently totals around 3 million.
Robinhood presently makes money by collecting interest on uninvested deposits and by offering margin, or leverage, via its Robinhood Gold platform.
“We intend to break even on this service and expect the new offering to expand our user base, which will in turn grow our existing revenue streams, including our margin and extended-hours service, Robinhood Gold, which starts at $10 a month,” Randall told MarketWatch.
Robinhood has already enjoyed success following a similar strategy when the company launched with about 500,000 users mostly by referrals two years ago. Robinhood is offering those who refer clients to the startup a free share of stock, and the person making the referral gets bumped up in the waiting line for access to the crypto platform.
The fervor over bitcoin — sitting at a price of around $11,000, even as prices have cooled considerably since late December — helped to drive Coinbase to a ranking among the most popular apps on Apple Inc.’s
app list last year.
According to data site data.bitcoinity.org (see chart below), Hong Kong–based digital-currency exchange Bitfinex maintained a market share of 30.6% over the past six months, while Coinbase ranks No. 2, with a share of 13.6%.
Of course, there are a host of other issues beyond market share that Robinhood will have to confront, including security.
Indeed, one Japanese exchange, Coincheck, confirmed that it was hacked, with a trove of Ripple’s XRP coins and NEM stolen, amounting to a sum about $500 million, larger than the hack of Mt. Gox. in 2014.
Still, crypto bulls think that the overall market, which some critics have described as a speculative bubble, is healthy and that more new entrants makes the market better, as digital assets get more Wall Street and mainstream attention, as well as more scrutiny from regulators.
“I don’t think it will erode shares of Coinbase, because it is entering a relatively new market with a strong potential for growth. This is an optimal time for players like Robinhood to join,” said Xiahong Lin, founder of Bodhi, a decentralized application on a distributed-ledger platform known as Qtum.