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Robinhood is pretty much on a roll, flushed with a reported $200 million in extra funding. The investment app has as much firepower as it needs to dominate the finance sector, particularly in crypto, where it hopes to make a dent. The company also has the potential to overtake industry stalwarts like Coinbase, one of the largest cryptocurrency exchanges in the U.S.
Crypto trading app Robinhood is poised to raise $200M in the next funding round with a $7-8B valuation. Most funds will be pouring in from current investors. Bloomberg reports the valuation could reach $10B for the venture rounds to follow. pic.twitter.com/VeoDASNGrY
— EXANTE (@EXANTE_EU) May 27, 2019
The growth of Robinhood provides a lot of issues for the two companies, particularly because their market audience overlaps.
Square’s widening net loss
In its defense, Square has been on a bit of an uptrend lately. After the company issued some weak guidance in Q4 2018, its reported results for Q1 2019 revealed that its adjusted revenues were $489 million, a year-on-year increase of 59 percent. The Cash App was particularly mentioned, with management claiming that it volume surged 2.5x year-over-year.
However, while the company’s earnings did beat expectations, there were signals of a slowdown as well. The company posted an increasing net loss of $38 million, up from $28 million the previous quarter and $24 million a year ago.
Coinbase’s troubles could undermine it
Coinbase, on the other hand, has been battling with dwindling revenues, in part caused by crypto winter. Reuters revealed that the exchange saw revenues of just $520 million last year; about 60 percent less than it was expecting. Fortune also detailed that the exchange recently closed down Coinbase Markets, its high-frequency trading offices located in Chicago.
The San Francisco-based exchange has also lost its place amongst the top earners in the world with a dwindling trade volume. A report from British crypto intelligence firm CryptoCompare revealed that Coinbase holds the 4th place, with about $4.7 billion in total monthly trading volumes; almost $2 billion less than Bitfinex, which came in third.
Robinhood’s zero-fee trading strategy
On the flip side, you have Robinhood. The company’s initial offering was a simple mobile brokerage app, which was targeted at millennial traders. However, the firm has grown exponentially since then, developing into the zero-fee trading platform that it is today.
Still, its major market, millennials, hasn’t changed one bit. Robinhood’s entry into the market has been its zero-fee trading service. While Coinbase charges 1.49 percent for fees, Robinhood makes its money off uninvested cash in customer accounts. In addition to that, Bloomberg ran an analysis of its SEC report, where it discovered that the investment app earns almost half its income from order flow payments. Rebates are another source of income for the company, according to a letter from its CEO Vladimir Tenev.
Beyond its comparatively lower fees, Robinhood also enjoys a lot of goodwill from the public. Its fee-free trading has endeared it to a lot of its customers, but it also enjoys the comfort of ticking hardly anyone off. This includes regulators. For instance, while a lot of companies have had issues with getting a virtual currency license from the New York State Department of Financial Services, Robinhood got its BitLicense– as well as a money transmission license- pretty easily.
Coinbase itself also has some customer angst to deal with. The company angered its customer community back in March after it sent out emails urging its customers to convert their Bitcoins to altcoins.
Dear @coinbase,
I do tech support for @ToastWallet .
One of our users sent #XRP to your exchange without a destination tag.
Is it your policy to not refund in this case?
Why is 'Destination Tag Required' not set on your account (so transactions without will bounce)? pic.twitter.com/VKCF74bP9H
— Patrick Boake (@netscr1be) March 2, 2019
XRP holders were also unhappy with the fact that entering the wrong destination tags on XRP transfers could see them lose their funds. So, it’s simple; at the current rate, Robinhood has the leverage required to grow bigger than both Coinbase and Square. It’s got more cash to burn and a target market interested in its fee-free trading platform.
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