The free-trading app has recently announced the growth it enjoyed due to Dogecoin since the beginning of 2021. Data revealed that the meme-based coin was a key player in the surge in the Robinhood cryptocurrency business. This is the first time this company has revealed its financial information. It is because it has filed a Form S-1 under the Securities Act 1933 of the United States to go public. Unlike before, it is now legally bound to make its data transparent. Just a day before signing the agreement, it was fined 70 million USD for its frequent system outages that have hurt so many customers badly. However, after the new document, it claims to commit to maintaining trust among its customer base.
Robinhood Cryptocurrency Business
In the first quarter, the controversial app made 522 million USD of revenue which is 300% more than it made in the same period of last year. It stated that Dogecoin became a reason for 34% of its total cryptocurrency revenue. Robinhood also said that if the demand for this coin slowed down then the company would suffer bad financial losses.
Brief summary of the company’s public records suggests that payment for order flow (PFOF) is still its most reliant feature for revenue.
PFOF is a theoretical term for commission / compensation which is usually a fixed amount given to stockbroker per share. It is often criticized for its lack of transparency and this is how RH makes most of its money. Market makers (like Citadel) pay brokers (like Robinhood) for the right to execute trades on behalf of customers. They pay a small fee to the broker for each order routing, which can add up to millions after customers trade actively as it can be seen in the case of Robinhood.
How Did Robinhood Make it?
Robinhood Cryptocurrency unit was launched in 2018 in hopes to double its customer base. However, it needed the help of Jump Trading LLC to enter the market with competitive advantage. Even though it runs the crypto platform, it cannot buy and sell on behalf of its clients. For that it needed a brokerage partner and most of big brokers haven’t started crypto trading at that time. Jump Trading from Chicago was not a very popular firm but was one of the early adopters of crypto.
The trading app’s relationship with Jump Trading is also never been made public before. According to the reports, it executes all RH cryptocurrency transactions. Robinhood Crypto accounted for 17% of the company’s trading revenue. In the first quarter of 2020, 9.5 million users traded crypto on RH’s platform. 6 million of them joined the app as new users during the first 2 months. Much of this growth has happened parallelly to the barrage of tweets by Tesla CEO Elon Musk.
When Dogecoin price soared above 300% to 0.056 USD during the first month of 2020, RH restricted the trading. It said that it stopped trading because of “extraordinary market conditions”. The company kept on receiving criticism yet around 88 billion USD of crypto was traded on its platform in Q1 2021. There are currently 7 coins to trade on Robinhood Crypto; Dogecoin, Bitcoin, Bitcoin Cash, Bitcoin SV, Litecoin, Ethereum, and Ethereum Classic. According to the released data, Robinhood’s core units for revenue (Options and Equities) were less active than last year. Meanwhile, Robinhood Crypto transaction grew by 3%.
The controversies do not seem to affect the active trading on Robinhood’s platform. The events of GameStop Stock (GSE) were mentioned at least five times in the document. The decision to limit the trading of GSE while the price was soaring, brought a lot of heat on the owners. There are around 50 class-action lawsuits against Robinhood. Further, multiple government agencies including the US Department of Justice, SEC, and FINRA are investigating its activities.