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Robinhood promised to take crypto investors to the moon, and there’s no turning back now

November 12, 2021, 12:42 AM UTC

Since going public in July, Robinhood has faced criticism from some quarters for depending too heavily on cryptocurrency trading in its business. The revelation, in the company’s pre-IPO regulatory filings, that crypto accounted for 17% of its revenues in the first quarter of this year—and that Dogecoin alone represented 34% of that crypto turnover—raised plenty of eyebrows among regulators and prospective investors alike at the time.

Somewhat predictably, Robinhood’s financial fortunes have in large part ebbed and flowed with the state of its crypto trading business. The company’s third-quarter earnings report revealed a sharp decline in crypto revenues that corresponded with a $200 million drop in its overall turnover compared to the second quarter. Those results consequently saw Robinhood’s stock slide below its $38 IPO price—a fall from which its shares have yet to recover. While inconsistent quarterly earnings are part and parcel of running an investment brokerage that operates at the whims of the wider market, Robinhood’s results further backed a sentiment that the company is far too dependent on crypto, in particular.

But anyone who thought that might have prompted an internal rethink of the company’s crypto strategy would have been sorely mistaken; if anything, it is only doubling down on the asset class as a key part of its approach. Even as he discussed disappointing crypto metrics on Robinhood’s third-quarter earnings call, CEO Vlad Tenev talked up the development of a crypto wallet product that he said had a waitlist exceeding one million users.

Robinhood COO Christine Brown offered further details on that crypto wallet offering on Tuesday. Speaking at Yahoo Finance’s live-streamed “Crypto Goes Mainstream” event, Brown revealed that the company’s crypto wallet waitlist now exceeds 1.6 million users. The product would function like virtually any other crypto wallet, allowing users to move their crypto holdings in and out of their Robinhood account.

Brown was more coy on whether Robinhood would acquiesce to the public clamoring for it to include the Dogecoin-inspired Shiba Inu token on its platform. Echoing Tenev’s comments last month about an “uncertain and evolving” regulatory environment around new crypto tokens and products, Brown said the company is in no rush to expand beyond the seven crypto assets it currently offers for trading, while refusing to be drawn on Shiba Inu coin specifically.

“Our strategy is a little bit different than a lot of the other players out there who are just racing to list as many assets as possible right now,” she noted. “We think that the short-term gain we might get is not worth the long-term trade-off for our users.”

That “long-term trade-off,” presumably, is the risk that frothy meme-coins like Shiba Inu could end up hurting Robinhood customers who buy into the hype without knowing what they’re getting into. One only has to ask those who bought Dogecoin at or near its $0.74 record high this past spring how they’re feeling about their investment now—though of course, Robinhood never let such reservations prevent it from offering that particular token to its users. More likely—and as Tenev noted—the company is wary of securities regulators who are eyeing the crypto sector ever so closely.

But that doesn’t mean we should expect Robinhood to scale back its crypto offerings anytime soon. When you’ve made yourself into a household name by catering to a generation of millennial and Gen Z investors hungry to put their money to work, you’d be remiss to deprive them of one of their favorite investment products—especially when it’s become such a key part of your own business. Robinhood promised to take them to the moon, and there’s no turning back now.

Rey Mashayekhi
@reym12
rey.mashayekhi@fortune.com

DECENTRALIZED NEWS

Credits 🚀 

The marquee feel-good item of the week: total crypto market cap eclipsed $3 trillion for the first time, with Bitcoin and Ether surging to all-time highs... Apple CEO Tim Cook revealed he’s hodling... Twitter is launching an in-house team dedicated to crypto and blockchain... Coinbase CEO Brian Armstrong says the company’s NFT marketplace “could be as big or bigger” than its crypto business... Mastercard has unveiled a three-pronged crypto strategy... Ripple is launching a product that lets financial firms offer crypto trading to their clients... Former Citigroup CEO Vikram Pandit believes “every large bank” will be actively considering crypto trading in the next three years... FTX honcho Sam Bankman-Fried thinks Solana’s ability to handle mass adoption makes it better than Ethereum... The Basel Committee on Banking Supervision will review proposed capital requirements for banks holding crypto assets ... Movie theater chain and meme-stock AMC Entertainment is looking into creating its own crypto and NFTs... NYC Mayor-elect Eric Adams has floated teaching crypto in the city’s schools... NBA player and crypto proponent Spencer Dinwiddie has big-upped the asset class once more, saying it “isn’t going anywhere”... Meet the 14- and 9-year-old siblings who have made six figures mining crypto this year.

Debits 🐻 

The SEC prevented a Wyoming-based crypto firm from registering two digital tokens as securities... Congress’s newly-passed bipartisan infrastructure bill makes certain crypto tax-reporting failures a felony... Indonesia’s national religious council ruled that crypto is haram, or forbidden, under Islamic law... Coinbase blamed “softer crypto market conditions” for missing its third-quarter revenue forecast... After hinting at integrating crypto and NFTs into its online communication platform, Discord’s CEO said the company has “no current plans” to do so... Crypto exchange Huobi Global is shutting down services in Singapore, only weeks after retreating from its home country of China amid Beijing’s crackdown on the sector... Citadel hedge funder Ken Griffin thinks Bitcoin will be supplanted as the dominant crypto by an Ethereum-based token... In a new report, the Federal Reserve warned of the “structural vulnerabilities” of stablecoins.

FOMO NO MO

In an opinion piece for Bloomberg this week, financial columnist Aaron Brown sized up the crypto market’s historic $3 trillion valuation to see whether it holds water. After all, with Microsoft and Apple each carrying market caps of around $2.5 trillion, that valuation means that “the entire crypto sector is around 20% more valuable than the equity of the two biggest tech companies,” Brown writes:

How does the total future value of all crypto services to end users compare to the potential future revenues of Apple or Microsoft? I’d say the potential of crypto is far greater than any one company today, but the risk is far higher. Crypto may never generate significant profits to investors, while Apple and Microsoft have large revenues and profits. Those companies also have employees and assets, and histories of developing valuable new businesses. Even if crypto growth continues, the value may be captured by users and developers, not by people who own coins today. Regulation may force crypto investors to take profits in crypto services rather than traditional currency.

Anyway, taking this view, you have to be an optimist to like crypto at current prices. The price-to-earnings ratio for the S&P 500 Index is near all-time highs, tech company valuations are particularly stratospheric and crypto is selling at its all-time high ratio to the largest tech companies. Froth upon froth upon froth. Moreover, there’s been no obvious breakthrough good news from crypto to justify the run-up in prices. Unless you’re sure that “this time is different,” crypto values seem likely to revert to mean. That doesn’t mean a crash, but it could mean years of mediocre returns. Although there are plenty of crypto assets that are promising investments, it’s hard to see much short-term upside for the fundamental value—based on real services delivered to real end-users—of the entire crypto universe.

But there are other ways to view the crypto market, Brown adds. One is to consider the sector “a separate economy,” which he says is what he did in 2013, when he allocated 2% of his portfolio to crypto in the belief that the sector “would represent 2% of the total economy in 10 years.” Today, he notes, crypto represents “about 3% of total global equity value”—while Brown’s crypto profits “now make up 40% of my wealth.”

And yet another view is that of crypto “as an alternative to the traditional financial system,” he writes:

From this perspective, crypto is worth $3 trillion because dollars are less solid than they used to be, not because crypto has developed better than expected. Having a solid presence in the crypto universe has obvious appeal looking at the world today, with the economy having severe problems restarting, worrying geopolitical events, politics and governments seeming dysfunctional, U.S. threats of financial repression and confiscation of assets and ultra-loose monetary and fiscal policy in the U.S. and elsewhere despite faster inflation.

All in all, Brown says his personal strategy “is to keep 2% in crypto without worrying about valuation.” He adds that crypto optimists and pessimists alike both have a case for their respective views on the sector. “I have no idea if today is peak crypto for this market cycle, but it does seem to be a particularly bad time to be either over or under exposed to it,” he concludes.

BUBBLE-O-METER

59%

A new survey conducted by Invoiced and PaymentsNEXT found that 59% of respondents at business-to-business (B2B) companies are not open to the idea of accepting cryptocurrency as a form of payment from the customers.

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MEMES AND MUMBLES

“what have I spent all my money on then?? wtf” You can file this one under the increasingly popular genre of “NFT Investors Confused About What They Actually Own.” Self-described “senior NFT strategist” @tropoFarmer got trolled on Twitter this week into thinking that someone who downloaded an image of his NFT was actually stealing his property. As other Twitter users were more than happy to point out, that’s not how NFTs actually work.

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