Robinhood Markets is adding a key feature to its cryptocurrency platform that could make it a bigger player in the crypto world — and force competitors to lower their fees.
The broker announced on Wednesday that it would start testing a crypto wallet next month that will allow users to move their digital assets off its app, or transfer assets from elsewhere onto the app. It is setting up a wait list for people to join if they’re interested — a strategy the company has used before with considerable success. Shares of Robinhood (ticker: HOOD) were up 3.8% on Wednesday afternoon.
Currently, Robinhood’s crypto service allows people only to buy and sell assets, but not transport them off Robinhood or send them to each other directly via the blockchains themselves. That makes the service more about price speculation than peer-to-peer transactions.
Adding a wallet, however, means that Robinhood customers now have the option to move their assets around, both to and from Robinhood. Robinhood now lets people buy and sell seven digital assets: Bitcoin, Litecoin, Dogecoin, Ethereum, Ethereum Classic, Bitcoin SV, and Bitcoin Cash.
Robinhood may be known for stocks and options, but its crypto business is becoming more significant. Digital assets made up more than half its transaction revenue in the latest quarter, with Dogecoin alone accounting for 26% of total revenue.
As Robinhood expands its crypto offerings, other players may feel the pressure. Just as Robinhood’s rise forced other stockbrokers to lower commissions to zero, similar downward price pressure could be building in crypto.
Crypto trading is commission free on Robinhood. Other crypto platforms charge commissions and spread fees when people use fiat currencies to buy crypto. Coinbase Global (COIN) fees have run as high as 4%, though they vary based on the payment method used and the company’s website does not currently have specific fee rates. Coinbase did not immediately respond to a request for comment on current fees.
PayPal Holdings (PYPL) charges a fee based on the size of a transaction, with a 2.3% fee for purchases of $25 to $100. PayPal says it will soon offer a crypto wallet.
With Robinhood’s new wallet service, some crypto investors may move assets to Robinhood so they can make transactions without paying upfront commissions.
But just because it’s commission free, that doesn’t mean Robinhood’s service comes at no cost to users. Robinhood makes money from crypto in similar ways that it makes money from stocks and options. It sends trades to market-makers that complete the transactions and take a cut of the spread between the bid and ask price. They then send a rebate back to Robinhood.
Just how big the spread that Robinhood and the market-makers take is a mystery — unlike stocks and options, Robinhood does not report details on its crypto payment for order flow. With stocks and options, payment for order flow could eventually be banned by the Securities and Exchange Commission. But crypto currently falls outside the SEC’s purview, so Robinhood’s revenue stream appears safe for now.
Write to Avi Salzman at avi.salzmanbarrons.com
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