On a crisp day in early December, Robinhood CEO Vlad Tenev and head of cryptocurrencies Johan Kelblatt sit in their lower Manhattan office penthouse, which has a wall-sized window. I was sitting on a blue sofa. It came two days before Tenev, wearing Nikes with a purple Swoosh, and Kerblat, wearing a navy button-down, formally announced the expansion of Robinhood's crypto operations into the European Union. For the past two years.
Depending on the level of skepticism about the broader industry, the move overseas was either perfectly timed (Bitcoin's price has nearly tripled since the beginning of the year) or it was too little, too late. . Last year, amid extensive regulatory scrutiny, many wrote the customary “cryptocurrency is dead” obituary.
But for Tenev and his lieutenants, EU membership is part of Robinhood's extensive work with crypto rand over the past five years, during which time the company's crypto trading fees have been just a fraction of its net revenue. It has grown to account for nearly half of the total. .
“I think so,” Tenev said. luck“Cryptocurrency is still in its infancy.”
From boom to bust
In early 2018, Tenev's financial services app, which had long relied on stock trading as its main source of income, has since expanded to earn interest on deposits and other assets, following Bitcoin as one of its many currencies. Stepped into virtual currency mania. rapidly increasing. “We took a little bit of a risk by being the first traditional financial services company in the U.S. to really embrace crypto,” Tenev said of the crypto market.
In addition to Bitcoin, the online brokerage initially added Ether as an asset that users can trade, and continued to expand its cryptocurrency offering through 2019, adding Litecoin, Bitcoin Cash, and meme coin Dogecoin .
The dog-themed cryptocurrency, originally created as a joke, briefly made cryptocurrencies one of Robinhood's most lucrative sectors. Amid the meme stock frenzy in the first half of 2021, Robinhood's profits briefly hit an all-time high, while traders flocked to online brokerages to buy and sell Dogecoin. Memecoin trading fees accounted for 32% of the company's net revenue in the second quarter of 2021, and the unprecedented demand temporarily crippled Robinhood's crypto trading software.
“It seems like almost overnight we became one of the largest crypto platforms in the world,” Tenev said, later adding that the company’s brand “became almost synonymous with crypto in 2021.” .
But since that dog-inspired delirium, Robinhood's crypto revenue has declined, from a high of $233 million during the rally to just $23 million in the third quarter of 2023.
“We cannot control the price of Bitcoin or the total market volume,” Tenev said. “But if we're steadily increasing market share in a bear market, and even faster in a bull market, I think that's an indication that our strategy is correct.”
Robinhood's crypto business has also come under regulatory scrutiny as revenues decline. In August 2022, New York's top financial regulator fined Robinhood's cryptocurrency division $30 million. In December 2022, the Securities and Exchange Commission issued an investigation subpoena to the company regarding its virtual currency business. Then, in June, the SEC sued Binance and Coinbase, naming SOL, MATIC, and ADA as unregistered securities in the lawsuit. Robinhood delisted the cryptocurrency from its exchange soon after.
Kerblat, the company's head of cryptocurrencies, declined to provide further details about the SEC subpoena, saying “there is nothing else going on at this time.”
expand regardless
But what actually happened is that this publicly traded company continued to expand its footprint in the world of decentralized money, despite the turmoil.
In late 2021, the company announced that it was developing its own cryptocurrency transfer method, which it subsequently released in 2022. And in 2023, it released both its own self-custody wallet and Robinhood Connect, which gives users portability options. They transfer the cryptocurrencies purchased on the Robinhood platform to other crypto apps.
The company is now starting operations in Europe, which seems to have a much more friendly legal environment for blockchain boosters. In mid-2023, the EU passed a regulatory framework for the cryptocurrency industry called MiCA (Crypto Asset Market Regulation). This is a measure of regulatory certainty that many in the crypto industry celebrated as a victory.
“At least in the crypto industry, the regulatory path is pretty clear,” said Thomas Perfumo, head of strategy at cryptocurrency exchange Kraken. luck, with reference to the EU regulatory regime. He also said the exchange, one of the region's market leaders, would not be threatened by Robinhood's entry.
Benjamin Norman “Fortune”
Robinhood appears to be taking advantage of that clarity. Due to EU expansion, the company is relisting SOL, MATIC, ADA (which the SEC claims are unregistered securities) and eight other cryptocurrencies not available in the US. “We'll definitely keep adding to it,” Kerblat said, referring to potential products. In Europe. (He declined to be more specific about these additions.)
Kerblat and his team are making the move as the cryptocurrency market attempts to recover from the latest crypto winter. In fact, Robinhood recently announced that crypto trading volume increased by 75% in November.
Mizuho Securities analyst Dan Dolev said: luck The potential approval of a Bitcoin exchange-traded fund, which is essentially a way for investors to buy cryptocurrencies through traditional brokerage accounts, could be a boon for the company. One of Robinhood's main sources of income is stock trading, so it could earn fees from trading ETFs on its platform, while competing exchanges allow users to trade Bitcoin directly on their platform. Trading volumes may be low because you have decided not to buy or sell.
“I think it is important to continue working on this in the future.” [crypto] is the right strategy,” said Devin Ryan, an analyst at JMP Securities. luckthe Robinhood approach.
“Connecting the real world and fiat currency with cryptocurrencies”
Does that effort still involve Dogecoin, especially as the company continues to seek to distance itself from meme stocks and coin bubbles in 2021? For now, the answer seems to be yes. “We do not view Dogecoin as a negative asset for us,” Kerblat said. And during his interview, luckTenev spoke passionately about the status of cryptocurrencies as “inflationary coins” and their various “properties.”
Mizhou analyst Dolev believes the long-standing question of whether Dogecoin (and other large cryptocurrencies) is a serious asset will ultimately benefit online brokerages. “For better or worse, cryptocurrencies are a huge marketing element,” he said. “So it's gaining attention, whether or not there's actually a future there.”
But beyond the marketing hype, Tenev and his team see cryptocurrencies as a set of potentially game-changing technologies, rather than just a collection of coins. “We want to be the leader in connecting the real world and fiat currencies with cryptocurrencies,” he said.
Predictions about blockchain's potential benefits continue to reach the financial industry, but given that Robinhood has been working on blockchain technology since its early days, it's likely that cryptocurrencies will grow beyond the dog world and into banks. Blockchain may be one of the companies best positioned to reap the benefits as it expands. “Robinhood is probably one of the better-positioned companies, given that they were created to bridge the gap between the traditional financial economy and the digital economy,” said Ryan, an analyst at JMP Securities. said.
