Is Robinhood’s new crypto wallet push an attempt to take on Coinbase?

Is Robinhood's New Crypto Wallet Push an Attempt to Take on Coinbase?

 

Robinhood, the zero-fee stock brokerage app, has just recently announced that they’re rolling out their own cryptocurrency wallet this week and allowing users to buy and sell digital coins directly from the app.

This has many people speculating whether or not this is an attempt to compete with the highly popular Coinbase cryptocurrency platform (which reportedly has over 13 million users and is valued at over $1 billion). Is Robinhood really trying to take on Coinbase?

 Let’s take a look at both companies’ offerings to find out!

 

A brief history of Coinbase

Founded in 2012, Coinbase is a digital currency exchange headquartered in San Francisco. According to its website, it has served more than 20 million customers across 32 countries.

The company operates exchanges of Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and other digital assets with fiat currencies in 32 countries, and bitcoin transactions and storage in 190 countries worldwide.

The company also offers a cryptocurrency wallet app allowing users to store their crypto assets. In addition, it provides merchant services for businesses that accept cryptocurrencies as payment. It was founded by Brian Armstrong and Fred Ehrsam. Robinhood’s new crypto wallet push:

 On January 25th, 2018, Robinhood announced via Twitter that they would be rolling out commission-free trading of Bitcoin and Ethereum on February 5th.

This announcement comes after months of speculation about whether or not they would be adding these two popular cryptocurrencies to their platform. Currently, Robinhood supports trading in stocks from over 5 different exchanges including Apple, Facebook, Amazon, and Google stocks among others.

 

The role of regulation in coinbase success

Today, cryptocurrency exchanges are still operating in a grey area as federal regulators and courts catch up with these new technologies.

 As we have learned from traditional markets, when there is no clear set of rules, bad actors can run amok. Investors and traders want to feel confident that a fair game is being played out, which means that more regulation will be welcomed by both buyers and sellers (up until a certain point).

A further boost for regulation could come from within Silicon Valley itself. Many high-profile investors have called for tighter rules around digital currencies. For example, PayPal founder Peter Thiel recently told Fox News:

I'm not saying [cryptocurrencies] are going to disappear but I think they're going to get smaller. But it remains unclear whether these calls for increased oversight stem from concern over fraud or simply.

Because some financial heavyweights believe cryptocurrencies pose a threat to their own business models. It’s also worth noting that many prominent figures in Silicon Valley have made big bets on bitcoin and other coins.

Including Andreessen Horowitz partner Balaji Srinivasan who recently joined Coinbase’s board of directors—so it may be difficult for them to take a hard line against any cryptocurrency exchange without hurting their own investments.

 

Choosing between bitcoin and altcoins

Buying bitcoin is easy. But that doesn’t mean it’s a good idea. Everyone is talking about cryptocurrencies these days and many people want in, but few know how to start trading cryptocurrency.

After all, it’s not like buying stocks where you simply sign up for an account with your bank account and transfer funds over, or even buying foreign currencies which are traded on open markets with daily volumes in the order of billions of dollars per day.

When you buy bitcoins or other cryptocurrencies with cash, via a wire transfer, check, etc., you have no choice but to trust somebody else (for example, LocalBitcoins) that they will actually provide you with currency tokens in exchange for your cash/bank-account balance.

 

How Robinhood could try to compete with Coinbase

Although it doesn’t have a proven track record, it’s possible that Robinhood could compete with Coinbase in a few different ways. The most direct approach would be to become a full-fledged crypto exchange, which would let users trade Bitcoin and other coins directly for fiat money.

But that has its drawbacks: Exchanges are expensive and complex operations—Robinhood would first need to recruit developers and designers capable of building such a system, then pass regulatory hurdles before it could legally offer services in all 50 states.

It’s more likely that Robinhood will try to take advantage of its existing infrastructure by offering crypto trading as a feature within its existing app. That way, it can still profit from transaction fees while keeping costs low.

A third option is that Robinhood might try offering something unique—like zero-fee trading or access to new altcoins not available on other exchanges. In any case, one thing is clear: If Robinhood does launch a cryptocurrency product, you can bet Coinbase will pay close attention.

 

Why did Robinhood choose now to enter the cryptocurrency market?

Robinhood is much better positioned to take advantage of blockchain and cryptocurrency than many of its competitors. The company’s first big step was moving away from trading with the U.S.

listed securities, which are subject to more rigorous regulatory oversight and have lower profit margins. Moving into cryptocurrencies allows Robinhood access to a new, fast-growing asset class that can drive up the volume without adding extra regulatory pressure—at least for now.

With low barriers in place, it’s easier for startups like Robinhood—which doesn’t require FDIC-insured deposits or investment in physical assets like cash or gold—to enter what has traditionally been a lucrative market dominated by giants like Goldman Sachs Group Inc., Morgan Stanley, and J.P.

Conclusion

No, it isn't. While there are certainly similarities between Coinbase and Robinhood, they aren't actually direct competitors. Coinbase is a cryptocurrency exchange while Robinhood is primarily a stock trading app with cryptocurrencies as an added feature.

In reality, likely, most of these new users don't actually plan on using their new crypto wallet; instead, they're probably interested in investing some of their own money into tokens with hype-worthy returns.

It will be interesting to see how many of these new users end up sticking around once they realize that buying cryptocurrencies is more complicated than just swiping right on Tinder. If you're looking for an easy way to get started with cryptocurrency, try downloading Blockfolio or CoinTracker.

These apps let you track your investment performance and even provide price alerts so you can buy at your target price. They also allow you to compare prices across exchanges so you can make sure you're getting a fair deal every time.

For investors who want to get serious about trading cryptocurrencies, it's worth noting that both apps have extensive libraries of educational material available so even novice traders can learn how best to manage their portfolios in volatile markets.

So if all those new Robinhood users want exposure to cryptos without having to jump through too many hoops (and paying too much for fees), then Blockfolio or CoinTracker might be better options for them anyway.