Robinhood's Guide To Cryptocurrency Investing

Robinhood is an online financial technology broker that has become a popular investing platform for both beginner investors and experienced day traders. The platform allows users to buy and sell cryptocurrencies with as little as $1 and no commission fees. However, investing in cryptocurrency is risky, and Robinhood may not be the best platform for every crypto investor. While Robinhood offers a user-friendly interface and zero-commission trading, it has fewer crypto offerings and services than some of its competitors. It's important for investors to carefully consider their goals and understand the risks before choosing a platform for crypto investing.

Cryptocurrency trading with Robinhood: how to buy and sell

Robinhood is an online financial technology broker that has made it easy for individuals to start investing with little money. The platform gained popularity during the Covid-19 pandemic, when many people were stuck at home and began to explore investing and trading different types of assets, including cryptocurrency.

How to buy and sell

Robinhood offers zero-commission trading of some of the most popular cryptocurrencies. You can buy and sell crypto with as little as $1. To get started, you'll need to open a Robinhood account. The application asks for personal information such as your Social Security Number, and you must be 18 or older and based in the US. Once your account is approved, you can fund your account and start trading.

Robinhood Crypto supports buying, selling, and real-time market data for:

• Ethereum Classic (ETC)
• Stellar Lumens (XLM)
• Basic Attention Token (BAT)
• Gemini Dollar (GUSD)
• Internet Computer (ICP)
• Wrapped Bitcoin (wBTC)
• Wrapped Ether (wETH)

You can also buy and sell well-known cryptocurrencies like Bitcoin and Ethereum, along with tokens such as Dogecoin, Litecoin and stablecoins.

Pros and cons

The main advantage of Robinhood is that it offers zero-commission trading, which is now industry norm. This fee-free structure gives it an advantage over some competitors. Another benefit is that investors can hold their cryptocurrency on the same platform as their other investments. Robinhood also has a range of trading tools, including charts to help you stay on top of prices and market trends, and it offers educational content for beginners.

However, Robinhood doesn't have as wide a range of cryptocurrencies and services as some other platforms. For example, it doesn't support staking, and it only allows users to receive and store NFTs. It also doesn't have as many research and analysis tools as other platforms, and it has been criticised for its limited customer support.

The risks of investing in cryptocurrency

Investing in cryptocurrencies like Bitcoin and Ethereum is risky. Cryptocurrencies are a young and emerging market, and their prices can be extremely volatile. This volatility is influenced by several factors, such as the constant global crypto community activity, the high degree of automation in the market, and the lack of concrete financial metrics, making valuation ambiguous.

One of the biggest risks of investing in cryptocurrencies is their speculative nature, which can lead to substantial price fluctuations. Cryptocurrency prices can soar or plummet dramatically within a short period, resembling a roller-coaster ride. This volatility is further exacerbated by the 24/7 nature of the crypto market, which differs from traditional stock markets. The high degree of automation in the crypto market, with algorithms predicting price movements, can also contribute to rapid price changes.

Another risk to consider is the unclear valuation of cryptocurrencies. Unlike stocks, which are based on concrete financial results, crypto lacks clear financial metrics, making it challenging to predict their long-term prospects. The lack of regulatory consensus among governments and regulatory bodies worldwide adds to the uncertainty, as the legal landscape surrounding crypto is constantly evolving.

Additionally, the decentralised nature of cryptocurrencies and the blockchain technology they operate on introduces further risks. While decentralisation reduces transaction fees and speeds up processing times, it also means that proposed changes to a blockchain's technology may be delayed or blocked due to a lack of consensus among the global community. There is also the risk of groups with malicious intent infiltrating and taking control of blockchain communities.

The technical complexity of cryptocurrencies can also lead to mistakes. For example, if you send cryptocurrencies to the wrong address due to a typing error, the transaction is irreversible, and you may lose your funds.

Furthermore, the lack of regulation in the crypto space makes it a target for scammers and hackers. Cryptocurrency holders need to be vigilant about digital security and should be wary of fake websites and phishing emails.

Lastly, the private keys to your crypto wallet must be kept extremely safe. If you lose access to your wallet or private keys, recovering your cryptocurrency holdings can be difficult or even impossible.

The pros and cons of Robinhood for crypto trading

Robinhood is a regulated financial institution in the United States, offering commission-free trading of stocks, ETFs, options, and cryptocurrencies. Here are some pros and cons of using Robinhood for crypto trading:

Pros

• No commission fees for crypto trading
• User-friendly interface on mobile and desktop
• 24/7 crypto trading
• Advanced trading tools such as custom price alerts and advanced charts
• Industry-leading security with cold storage and crime insurance
• Crypto wallets available

Cons

• Limited selection of cryptocurrencies compared to other platforms
• Not available in all U.S. states and some countries
• Lack of trading tools and resources
• No mutual funds, joint accounts, or educational account options
• Security incidents and controversies in the past

How Robinhood makes money

Robinhood is a California-based financial technology company that offers a commission-free investing and trading platform. The company makes money through a variety of revenue streams, including:

• Payment for order flow: Robinhood routes its users' orders through market makers that compensate the company for the business at a rate of a fraction of a cent per share. This system, known as payment for order flow, is a significant source of revenue for Robinhood and enables the company to offer zero-commission trading.
• Interest: Robinhood generates interest revenue by investing users' cash deposits at a higher interest rate and through margin lending. The company also earns interest on securities lending transactions and margin loans to users.
• Membership fees: Robinhood offers a subscription service called Robinhood Gold, which provides users with access to additional features and tools. Users pay a monthly or annual fee for this premium service.
• Credit card: Robinhood launched its first credit card in 2024, which will bring in revenue through interest charges and fees.
• Crypto business: Robinhood Crypto earns income through rebates from crypto trading venues. The company also generates revenue from fees associated with its Robinhood Connect service, which facilitates the purchase and transfer of crypto to self-custody wallets and dapps.
• Stock lending: Robinhood lends securities to counterparties and earns income from these transactions.
• Bank sweep program: Robinhood Securities generates income by sweeping uninvested cash in individual investing accounts to participating banks.

Robinhood's diverse revenue streams allow the company to offer commission-free trading and a range of financial products and services to its users.

The history of Robinhood

Robinhood Markets, Inc. is an American financial services company headquartered in Menlo Park, California. The company was founded in April 2013 by Vladimir Tenev and Baiju Bhatt, former builders of high-frequency trading platforms for financial institutions in New York City. The company is named after Robin Hood, based on its mission to "provide everyone with access to the financial markets, not just the wealthy", with no commissions or minimum account balances.

Robinhood initially set out to design a mobile app that was free, easy to use, and addictive. The app was first presented at LA Hacks in April 2014, followed by a beta release later that year. The official launch of the mobile app took place in March 2015.

In February 2018, Robinhood launched commission-free cryptocurrency trading of Bitcoin and Ethereum in several US states, with availability expanding later that year. By 2021, Robinhood had added support for trading Bitcoin Cash, Dogecoin, Ethereum Classic, and Litecoin. The company also introduced automatic recurring investments in cryptocurrency in September 2021.

In April 2022, Robinhood issued cryptocurrency wallets to over 2 million customers on its waitlist and expanded its offerings to include trading for Shiba Inu, Solana, Compound, Chainlink, and Polygon. The same month, Robinhood integrated Bitcoin's Lightning Network to enable faster transactions involving the cryptocurrency.

Robinhood has continued to expand its services, including the launch of Robinhood Connect in April 2023, which allows users to trade cryptocurrency using other cryptocurrency wallets. In December 2023, Robinhood expanded its cryptocurrency trading services to the European Union.

Today, Robinhood offers its users the ability to buy, hold, and sell various cryptocurrencies, including BTC, ETH, DOGE, SHIB, AVAX, LTC, UNI, ETC, LINK, XLM, and AAVE. The company prides itself on offering the lowest cost to trade crypto on average in the US.

Frequently asked questions