Popular smartphone app Robinhood announced it will begin to allow users to trade bitcoin next month, and without transaction fees. Until now, online retail brokerage platforms have been careful about dabbling in bitcoin by way of futures contracts, preferring not to deal directly in cryptocurrency. The young app is ready to try a loss-leader model in what some consider the future of money.
Robinhood Gets Crypto
Cofounder Vlad Tenev of the Robinhood trading app urged: “Cryptocurrencies have become the first foray into investing and financial services to a large number of people,” he told Evelyn Cheng. “Now it’s become more and more clear [that bitcoin is an] investing asset. We will connect to many exchanges, up to a dozen or more, over the next several months. We want to break even on this business, not to profit from it. We view this as an opportunity to expand our customer base and give our customers more access to functionality.”
Robinhood will basically provide a kind of escrow settlement system, with coins held offline. Reports claim it won’t ask for investment quotas (neither minimum nor maximum) and no withdrawal limits. The service will focus on two coins at first, bitcoin and ether, and limit trading to fives states: New Hampshire, Massachusetts, Montana, Missouri, and California.
Robinhood has been known for allowing its three million smartphone users to trade stocks for free, but includes a premium service with recourse to Options. The company launched about three years ago as a way for customers, mostly younger investors, to trade stocks through their smartphones. Close to eight in ten Robinhood clients are millennials.
The plan seems to extend that model into cryptocurrencies, with a transaction-fee-free experience. Its users can already track more than a dozen cryptos by price, news, and alerts. It’s a time-honored loss leader promotion. The business hopes it’ll attract enough customers and eventual loyalty by volume that’ll dwarf any transaction costs.
A Challenge on Two Fronts
Robinhood will allow 1,000 USD instantly from linked bank accounts, slower for other types of transfers, which could alleviate minnow traders from missing out on price fluctuations due to transfer friction. Techcruch explains:
When you place a buy or sell order, Robinhood gives you an estimated price, connects to a slew of trading venues, exchanges, and market centers to find the lowest price, and uses its economies of scale to improve to score better prices over time. To counter market volatility, Robinhood puts a ‘collar’ around your trade so if it can’t execute it at close to the estimated price, it waits for the price to return or lets you know.
According to the company, gaggles of its users were regularly searching for cryptos on its app, and so next month’s rollout seems an already good fit. Robinhood is simultaneously taking on retail brokers, which offer single digit trading fees, along with well-established crypto exchanges.
Crypto “puts power that’s historically been held by financial institutions in the hands of the people. I think that lines up directly with Robinhood’s mission to democratize the financial system” Mr. Tenev explained.