Could Robinhood Crypto Rival Coinbase and Others with Zero-Fee Trading?

Robinhood is planning on expanding its trading platform to include cryptocurrencies. With its zero trading fees, it might be set to rival larger competitors like Coinbase.
Christopher McFadden

Low to zero fee stock and crypto trading and tracking applications, like Robinhood, are fast becoming all the rage. But unlike others, Robinhood has just announced its intention to merge traditional trading with the cryptocurrency market. From next month, it plans on expanding its fee-free trading on its platform in selected U.S. states. It will also be limited to buy and selling Bitcoin and Ethereum fee-free. Support for other cryptocurrency exchanges is also set to join the party later down the line.

But could Robinhood Crypto rival Coinbase and others with zero-fee trading? Let's take a very quick look.

Could Robinhood Crypto Rival Coinbase and Others with Zero-Fee Trading?
Robinhood Crypto is currently early access only. Source: Robinhood Crypto

What is Robinhood Crypto?

Robinhood Crypto is a new trading platform app that allows users a way to invest and trade in Bitcoin and other cryptocurrencies commission-free. It is an offshoot of the Robinhood's stock trading platform that allows for commission-free stock trading. It builds on the growing trend of low to zero cost trading platforms that attempt to alleviate the need for potential investors to pay extortionate trading fees. Robinhood now joins the ranks of other low-cost platforms like DeGiro to continue the assault on an older long-standing online platform like TD Ameritrade or OptionsHouse. Robinhood's cryptocurrency trading app is set to launch sometime in February 2018 and its release is highly anticipated

Vlad Tenev, Robinhood's co-founder, says they are not yet planning to generate any profits from this service. But the more astute reader will probably immediately ask the question "Surely there is no such thing as a free lunch, they must make money on it somehow?".

The answer might surprise you. According to their own website "[Robinhood] earns revenue by collecting interest on the cash and securities in Robinhood accounts, much like a bank collects interest on cash deposits." They also make money with other commissions and fees that are not directly related to buying and selling securities and gold. It is also possible that the main reason for the new app is to drive more users to use their popular existing stock trading platform.

Could Robinhood Crypto Rival Coinbase and Others with Zero-Fee Trading?
Source: BTC Keychain/Flickr

Is zero-fee a game changer?

On release, the app will be limited to Bitcoin and Ethereum and will also be geographically limited to the United States, at least for the first half of 2018. The company's other co-founder, Baiju Prafulkumar Bhatt has also explained that they plan to expand the service to 14 other cryptocurrencies and locations over time. 

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Robinhood Crypto could potentially be a game changer especially for those who are likely to trade in large volumes. Existing exchange sites like Coinbase, for example, currently offers trading between 1.5 and 4% depending on your location and the transaction type. For new potential traders, zero-fees will help incentivize them jumping into the market. This move should also be supported by those who argue that high fees could be stifling widespread cryptocurrency adoption. Afterall, the entire point of blockchain is to eliminate the middleman during transactions. It should also help legitimize the entire cryptocurrency market by putting them on level pegging with more traditional equities.


But it must be noted that the 0% fees are, as the small print on their website details, "commissions for Robinhood Financial self-directed individual cash or margin brokerage accounts that trade the U.S. listed securities via mobile devices or Web. Relevant SEC & FINRA fees may apply."

"We're planning to operate this business on a break-even basis and we don't plan to profit from it for the foreseeable future," co-founder Vlad Tenev told TechCrunch. "The value of Robinhood Crypto is in growing our customer base and better serving our existing customers."

It will be interesting to see if its success will promote the adoption of very low to zero fees within Robinhood's competitors. One potential pitfall will be its ability to be kept up to date and as close to current market prices as possible for user crypto trading. Robinhood's website does advertise the app as providing real-time market data and news so it looks like this box is ticked. Especially if prospective traders want to take part in day trading. Included currencies include Monero, Zcash, Ripple, Litecoin, and Dogecoin as well as Bitcoin and Ethereum, of course. 

Could Robinhood Crypto Rival Coinbase and Others with Zero-Fee Trading?
Source: Pixabay

How trading works

Once the app is launched in February, users will be able to buy and sell cryptocurrencies 24/7 on their platform. It will also allow users to instantly transfer up to $1,000 from their banks to their Robinhood account for trading. Any transactions above this value will use the slower ACH transfer process. Like other online brokers for trading, users will be able to monitor and track cryptocurrencies. They will also be able to set some automated commands to automatically buy or sell once exchanges reach a certain level. These are akin to stop-loss and stop-limit orders.

The application will enable users to also trade in stocks, exchange-traded funds (ETF's) and options alongside cryptocurrencies for maximum convenience. Currently, most traditional equity and cryptocurrency traders need to use a variety of platforms to manage their portfolios. This app's integration of both will certainly be appealing to these traders. Its appeal for future users will be the relative savings it will offer for trading. Other cryptocurrency trading exchanges, like Coinbase - one of the world's largest cryptocurrency trading exchanges, currently charge customers a small transaction fee to buy or sell cryptocurrencies. Some of this fee goes to pay miners who help maintain each currencies' blockchain. 

Is Robinhood safe from hacking?

With the seemingly increasing issues with the hacking of cryptocurrency trading exchanges, users are likely to wonder about the security of the application. As you can imagine Robinhood cannot be held responsible for breaches of security within any prospective blockchain. As for any cryptocurrencies held on their platform, these are not covered under their membership of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC) for traditional securities, so be warned.

They do operate a mix of hot (online) and cold (offline) storage services for cryptocurrencies. They also, according to their website "use cutting-edge security measures that are both processes and technologically driven to secure your coins." You can view Robinhood's full security information here

So could Robinhood Crypto rival Coinbase and others with zero-fee trading? Most definitely, but to what extent is yet to be seen. What do you think? Feel free to comment below.

The content on Interesting Engineering does not provide any investment advice and is for informational purposes only.

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