Robinhood finally teases crypto wallet for withdrawals — but not ’til March

Crypto accounted for half of Robinhood's transaction-based revenue across in the second quarter of this year. Most of it was Dogecoin.

Robinhood has confirmed plans for a crypto wallet to support digital asset withdrawals and non-fungible token (NFT) transfers.

The Menlo Park firm expects to launch a beta version this year, with a full release by early 2022.

The crypto community has long pleaded for Robinhood to allow crypto withdrawals. The company’s tenuous licenses with its custodial and clearing partners have prohibited it from offering this functionality so far.

Users withdrawing crypto “could expose us to heightened risks related to potential violations of trade sanctions, including OFAC regulations, and anti-money laundering and counter-terrorist financing laws,” Robinhood previously disclosed.

Meanwhile, crypto revenue has become indispensable to Robinhood. This year’s second quarter was the first time Robinhood saw more new customers place their first trade in crypto rather than equities.

Robinhood stock has faired better than crypto exchange Coinbase.

Crypto accounted for half of the company’s transaction-based revenue across that period (Dogecoin made up for 62%).

Crypto made up just 17% of that revenue in 2021’s first quarter.

So, Robinhood has responded accordingly to its profit channels by opening a waitlist for crypto wallet access.

As usual, now-public company encourages users to bump themselves up its artificial queue by referring friends.

Crypto aside, SEC concerned by Robinhood

Robinhood maintains it has a “0% commission” policy on crypto trades. However, US Securities and Exchange Commission (SEC) chair Gary Gensler has threatened to ban its underpinnings: payment for order flow.

Like many discount brokerages, Robinhood earns revenue by providing preferential order access to high-frequency firms like Citadel and Vitru.

“They get the first look. They get to match off buyers and sellers out of that order flow,” explained Gensler earlier this year. “That may not be the most efficient market for the 2020s.”

Payment for order flow has “an inherent conflict of interest,” he said. Gensler even noted an outright ban is “on the table.”

Gensler’s comments on payment to order flow tanked Robinhood’s stock.

But former SEC commissioner and Robinhood’s chief legal officer Dan Gallagher disagrees.

Payment for order flow and its associated discounts, Gallagher says, are “undoubtedly an amazingly good thing for retail investors” who feel “insulted” by the implication that they need government protection (via CNBC).

Gallagher would rather investigate the people who were dishonest about meme stock GameStop — not Robinhood — if he was still at the SEC.

Robinhood can’t guarantee no more investigations

Robinhood had its fair share of heat on the heels of the GameStop and AMC short squeezes.

In July, Robinhood Crypto paid a $30 million fine to settle anti-money laundering concerns with the New York State Department of Financial Services.

Before that:

  • Robinhood suspended trade several times, sparking anger and subsequent lawsuits against the company.
  • In December, a Massachusetts regulator said Robinhood illegally encouraged “constant” use of its app, approved unqualified customers to trade unsuitable options, and acted “without regard for the best interests of its customers.”
  • The SEC sued Robinhood in the same month for gamification practices and the “unusually high amounts” it charged trading firms for its customers’ orders.

The US Financial Industry Regulatory Authority (FINRA) also fined Robinhood $70 million for outages in March 2020 (when coronavirus panic tanked global markets) — FINRA’s largest ever.

This led Robinhood to admit payment for order flow “can result in harm to customer execution quality” in its latest quarterly report.

Kyla Scanlon has truly captured the relationship between Robinhood and Cathie Wood.

Read more [Robinhood Crypto triples expected NY anti-money laundering fine to $30M]

Robinhood also “cannot guarantee” that it won’t face additional investigations or penalties in the future related to payment for order flow.

On a brighter note, Ark Invest founder Cathie Wood expressed confidence that Robinhood’s payment for order flow model is good enough.

The company’s revenue mix will not have to change much to meet SEC requirements, she says.

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