In April of this year, Robinhood, a popular trading platform, made headlines when it was unable to keep up with a Dogecoin rally. Angry users found themselves locked out of trading. Robinhood has recently experienced another crypto outage, yet it continues to move forward with plans to launch an IPO. This might leave you wondering if trading crypto on Robinhood is a good idea and if there are any alternatives.
Problems Trading Crypto Leave Users Out of the Market
The latest outage on the Robinhood platform occurred on Friday, July 2, 2021, for about an hour. The issue involved crypto display issues and seemed to have affected mostly users in North America. The platform apologized, stating that it takes outages seriously.
This most recent outage was resolved much more quickly than the April outage that resulted in $70 million in fines and restitution to customers who lost money due to the outage. The main reason for the fines was that Robinhood “negligently communicated false and misleading information to its customers” at various times since 2016. The findings also stated that Robinhood failed to screen customers for proper qualifications to perform risky crypto trades.
Robinhood IPO Move Forward
The April outage came only a few weeks after Robinhood filed for an IPO on March 23, 2021. Robinhood has roughly $80 billion in assets under its custody, and its assets have grown from $7.2 million in March of 2020 to $18 million in March of 2021. Robinhood plans to use the ticker symbol “HOOD.”
When you consider the portion of its assets that crypto represents, only 25% of its assets are in crypto. Although the platform lost $1.4 billion in the first quarter of 2021 due to emergency fundraising related to the Gamestop trading mania and crypto outages, it was one of few IPOs to record a profit last year.
The company’s prospectus highlights its growth and states that it plans to allocate between 25-35% of its IPO shares to customers. It plans to raise $100 million in its public offering. Despite its problems, Robinhood remains a profitable company and has managed to create an attractive offering for investors.
Is There a Better Alternative?
If you are interested in trading crypto, outages should be a concern. Another thing that many investors do not realize is that when you purchase crypto on Robinhood, you do not actually own the asset. You cannot move your crypto holdings to an external wallet. All the crypto that you purchase on Robinhood is like a share of the crypto, but Robinhood holds all of it in its own wallet. All of the crypto that you buy is in Robinhood’s custody.
If you want to hold your crypto assets yourself, an exchange, like Coinbase, might be your best option. Robinhood was an online brokerage first and dabbles in crypto as a fraction of its holdings. You can only purchase a narrow selection of cryptocurrencies on Robinhood, and you do not actually own them. With Coinbase, you can buy over 50 different cryptocurrencies, and you can transfer them to your hot or cold storage wallet.
Robinhood plans to offer a crypto wallet soon, but cryptocurrency is only a small part of their business. For companies like BlockFi and Coinbase, they were a cryptocurrency platform first. You have control over your funds, and no one can freeze your funds and deny you access to them.
One of Robinhood’s main selling points when it comes to crypto trading is low fees. Companies like Coinbase and BlockFi charge a small fee for many of their services, but you actually own your cryptocurrency and can use it as you see fit. Robinhood has a few advantages when it comes to their primary business, trading stocks, but when it comes to crypto, they are behind the times.