Robinhood Has A Crytpo Business, And It Is Big

  • Date: 08-Sep-2021
  • Source: Forbes
  • Sector:Economy
  • Country:Middle East
  • Who else needs to know?

Robinhood Has A Crytpo Business, And It Is Big

Robinhood offers free trades for cryptocurrency, making money by selling the order flow of its customers to market makers, much like it does for options and equity. However, unlike the equity and options payment for order flow businesses which has come under scrutiny, the regulatory risks are probably lower for the crypto business, as the SEC doesn't really control the crypto market. That being said, we don't think that Robinhood can count on its crypto business to drive consistent growth. The cryptocurrency market is extremely volatile and is also subject to multi-year cycles (usually two to four years) and engagement could quickly fall off in a bear market. Although this is a risk that all crypto brokers face, the impact on Robinhood could be more pronounced as the company largely caters to first-time investors who could pull out as markets decline. In comparison, rival Coinbase derived roughly two-third of its crypto trading volumes over its most recent quarter from institutional customers, who are less likely to scale back. We value Robinhood stock at about $39 per share, indicating a downside of about 13% from the current market price. See our analysis on Robinhood Valuation: Is HOOD Stock Expensive Or Cheap?