Robinhood Crypto Tackles Transaction Fees, The Third Rail of Financial Institutions
Vlad Tenev, the co-CEO of online investment banking brokerage Robinhood, is taking on cryptocurrency exchanges by doing away with the third rail of financial services: the transaction fee.
Robinhood, a free stock trading app that has bucked the traditional trading platform model by eliminating transaction fees, recently launched Robinhood Crypto, attracting millennials who aren’t looking to pay the infamous four to five percent rate when trading cryptocurrencies.
“Cryptocurrency platforms have exorbitant fees, and they’re hard to use. I think it’s fair to say that our goal is to build the best product on the market, where users can have all of their investments in one place” explained Tenev in a recent interview with Business Insider.
Currently, the top ten cryptocurrency exchanges are bringing in as much as $3 million per day in profit by charging fees for users who buy, sell, and withdraw cryptocurrencies.
Although the trading fees for the top ten exchanges hover around 0.1 to 0.2 percent, these rates cost users millions of dollars every day. If people make high volume trades using these exchanges, the fees begin adding up.
In part due to its popularity amongst millenials, Robinhood has opened a total of 4 million brokerage accounts within the past year, which surpassed E-Trade with 3.7 million accounts. Founded in 2013, the company initially offered traditional investment products such as stocks and options on a no-commission basis.
Currently, Robinhood collects interest on securities and cash held in user accounts in addition to collecting profits from its premium subscription service Robinhood Gold, which features margin trading and extended market hours.
Other popular cryptocurrency trading platforms like Coinbase and Circle rake in about $1 billion annually, but that comes at a price for users. Coinbase charges a spread on the exchange rate, while also charging an additional 1.5 to 4 percent, depending on the user’s payment method and location. These rates may make Coinbase, Circle, and other establishment cryptocurrency exchanges vulnerable in a market where active traders are looking to avoid fees.
Until recently, Robinhood only allowed users to trade Bitcoin and Ethereum, which are the two largest cryptocurrencies in terms of market capitalization. The platform recently added Litecoin, Bitcoin Cash, and even Dogecoin. However, Robinhood Crypto only operates in 17 states unlike Coinbase, which operates in nearly all 50 states. Once Robinhood Crypto gets the go-ahead from the Securities and Exchange Commission to provide their services in more locations around the country, the platform could pose as a real threat to its competitors.
Aside from the costs, Robinhood boasts its ability to do all one’s trading within a single platform. As millennials begin to diversify their investments and buy more cryptocurrencies, Robinhood could provide them with a simple space for all their financial transactions.
Even though Robinhood has sacrificed massive profits by not collecting commission, they are sticking to their current philosophy. $150 billion worth of transactions have taken place on using Robinhood, which would have amounted to $1 billion in fees if investors took their services elsewhere.
Transactions fees have been a headache for investors for decades. Although Robinhood is only available in 17 states, the platform’s success is a testament to the fact that people are tired of paying commission when it comes to trading on cryptocurrency exchanges.
You can always find the latest by following us:
Blockstreet HQ | Twitter | Medium | Soundcloud
