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Why Robinhood Is a Dark Horse in the Crypto Industry

The well-known fintech is quietly well positioned to be a prominent player in crypto.

Photo by Austin Distel on Unsplash

When Robinhood launched its crypto offering in 2018, I was excited to see a leading fintech startup lean into the blockchain space. I figured it was the beginning of a huge wave of adoption for crypto among fintech and payments companies: PayPal, Visa, even JP Morgan.

Only a few months prior to the launch, Robinhood co-founder Vlad Tenev publicly stated that crypto wasn’t a market that he was overly focused on.

However, shortly after the launch of Robinhood Crypto, Tenev noted that it had become clear that Bitcoin was an investing asset, and that crypto was an exciting new entry point into a new wave of investors.

Tenev wanted Robinhood Crypto to be a customer acquisition play — with the hopes of cross-selling new investors into the core product. He realized that there were millions more crypto traders than traditional ones in the United States; at the time, Coinbase announced a big milestone that it had more users than the established brokerage Charles Schwab.

So Robinhood Crypto launched on February 2018 with an 80s, Tron-inspired design, amassing a waitlist of 1 million users within five days of launch.

This was the turning point for widespread crypto adoption.

Robinhood Crypto’s retro theme. Image via TechCrunch

Three years later, widespread adoption has yet to come

Visa, PayPal, and JP Morgan are still in the early stages of their crypto projects. And Robinhood Crypto has failed to capitalize on the buzz that it generated at its launch.

Robinhood Crypto users found the design to be off-putting, were confused by the price discrepancy of coins on Robinhood versus other exchanges, and were alarmed at the inability to move crypto out of Robinhood to other crypto wallets — something that is table stakes in other exchanges.

“Not your keys, not your crypto” is a hackneyed adage in the crypto community, generally meaning that if you can’t move your crypto into a “non-custodial” wallet, you don’t actually own the cryptocurrency.

(Note: it actually means if you don’t hold the private keys of the wallet address, you don’t actually own the cryptocurrency. Many exchanges and other apps don’t allow people to actually own the “private keys” for their crypto. I’m oversimplifying because cryptography is confusing and warrants a lengthier explanation than I’d like to dedicate time towards.)

Robinhood committed a cardinal sin among crypto users by selling them “paper Bitcoin” and not allowing them to own and move crypto to other destinations.

Either Robinhood didn’t properly do their user research, or they tried to target an entirely different user segment (e.g., first-time crypto buyers).

No metrics thus far

Regardless, Robinhood hasn’t publicly released any metrics with regards to its crypto product, signaling that adoption hasn’t been a point of pride for them. Robinhood launched with two coin listings (Bitcoin and Ether) available in five states in 2018. Nearly three years later, they have seven coin listings available in 47 states.

This is a far cry from the top crypto exchanges.

Coinbase has 36 listings and is available in 4 countries. It has over 35 million users, which is nearly 3x the total number of users that Robinhood has (nearly 13 million). Coinbase’s annual trading revenue eclipses $1 billion, whereas Robinhood is celebrating <$200 million in Q2 2020.

Binance has over 200 listings, is available in 180+ countries, and has over 15 million users.

It’s worth noting that coin listings and geographic availability are the two primary needs of crypto traders (fees, UX, and security follow afterwards)

Binance, one of the leading crypto exchanges, prides itself on its reach. Image via Binance Blog

As a user, it’s abundantly clear that Robinhood Crypto has been relegated to a side feature on the app. It’s not highlighted on the homepage and can only really be found by looking up cryptocurrencies on the Search bar.

So Robinhood Crypto has been down on its luck, but I’m here to argue that Robinhood not only can succeed but is incredibly well-positioned to succeed in the crypto trading space.

Why would Robinhood double-down on crypto?

Let’s assume that Robinhood hasn’t deemed its crypto product a success — based on the lack of public metrics, negative user feedback, and limited feature updates since its launch.

So why would it still invest in building out Robinhood Crypto?

Three reasons:

  1. There’s a lot of money to be made and users to grab
  2. In the U.S. (Robinhood’s only current country of operation), the second-tier exchange market is highly fragmented
  3. They’ve already invested a lot in high-end crypto infrastructure (a bit of a sunk cost fallacy, but bear with me)

There’s a lot of money to be made

The crypto markets are in the middle of an absolute frenzy.

The total crypto market cap doubled since the beginning of the year — from ~$180 billion to nearly $400 billion at its peak in August — driven by the rise of DeFi protocols and their associated coins, stablecoin exploration from central banks, and a wave of new derivative products.

Compared to the start of 2020, the average daily trading volume tripled.

Decentralized exchanges, a type of DeFi app that offers trustless trading, clocked in nearly $24 billion in trading volume in September — nearly double of Coinbase’s $13 billion in trading volume in the same time frame.

Decentralized exchanges have only gained popularity in the past 6 months, while Coinbase has been a crypto stalwart since 2012.

To keep a long story short, crypto is seeing an unprecedented resurgence since the bubble of 2017. And the growth will continue.

Image via TradingView

The U.S. second-tier exchange landscape is highly fragmented

In the United States, Coinbase is the definitive #1 crypto exchange, both for first-time investors and experienced traders. Kraken, especially with its new U.S. banking license, is a debatable #2.

Together, these two exchanges constitute over 75% of the average daily trading volume in U.S.-based crypto exchanges.

Afterward, the competitive landscape becomes highly fragmented. We have Bitstamp and Gemini and Bittrex and OKCoin and Binance (who is a small player in the U.S. market), but none of these exchanges have managed to grab more than 5% of the daily trading volume in the space.

Robinhood already established foundational crypto infrastructure

Robinhood has already invested in sound crypto infrastructure such as cold storage and keys management and in a full-featured UI/UX for crypto trading.

The implication being that any incremental investment they make in crypto will benefit from economies of scale and will have a lower technical lift for their product/engineering teams.

How can Robinhood succeed as a crypto exchange?

In my mind, Robinhood needs a two-pronged strategy to capture a significant share of the U.S. crypto trading market: reimagine the Robinhood Crypto product to address existing user pain points, and leverage its competitive advantages to create a distinctive crypto trading experience.

It’s worth mentioning that I said a distinctive trading experience, as opposed to investing.

Robinhood has two main user personas: the first-time investor, and the experienced trader. In the crypto world, investors are more interested in “HODLing” their coins, whereas traders are looking for strategies that quickly make them money.

While Robinhood is great a serving a delightful experience for investors in traditional financial markets, I think they’re better served leaning into the trading space because:

  • Coinbase already serves that niche in crypto
  • Traders have higher engagement with exchanges and transact more than investors, leading to higher customer LTV

Reimagining the Robinhood Crypto product

Robinhood Crypto still seems like an unfinished product to me. Yes, it’s “finished” in the sense that it’s a complete and fully-featured product. However, there have been limited product updates since its launch. The UI makes it feels like an entirely separate product experience. Major new features are few and far between (e.g., new listings).

Worst of all, the product team hasn’t addressed any of the egregious pain points that users have pointed out. My recommendation would be to reimagine Robinhood Crypto and make it an actual, finished crypto product.

Here’s what I mean by that:

Fix the custodial solution so that users can move and actually own their crypto. Don’t give them “paper Bitcoin”, where Robinhood actually holds the Bitcoin on users’ behalf. This may fly with traditional securities, but absolutely not with crypto.

Fix the price discrepancy issue. No user wants to buy Bitcoin for a higher price than what’s listed on CoinMarketCap; no trader wants to read candlesticks on TradingView using a Coinbase price feed and set a stop-loss for a price movement that won’t exist on Robinhood Crypto.

If it’s an order book and liquidity issue, work with market makers to take advantage of the price arbitrage opportunity in order to reconcile coin prices.

If it’s a price feed issue, build better connections to trusted oracles and other market data APIs.

Integrate Robinhood crypto more with the core product experience. If the goal is to acquire new users and cross-sell them to the core product, find ways to integrate the two disparate experiences.

Some of my stream-of-consciousness ideas: change the UI and visual identity to match the core product, add crypto to the homepage as a separate profit/loss chart, have crypto as a dedicated button in the bottom navigation bar.

Ship, test, listen, and learn from your users. This one is less of an idea and more of a best-practice way of working.

Come up with hypotheses that move the needle on OKRs and solving user needs. Build and ship pilots. See if the data and feedback is validating or disproving the hypotheses. Set up a dialogue with your target users on how they’re experiencing the product.

A product should evolve after its initial launch. If Robinhood Crypto listened to its target users, it could’ve made some of the changes I outlined years ago.

Leverage Robinhood’s competitive advantages

Robinhood has the dry powder to create a great crypto trading experience.

Brand name: Crypto traders are looking for a secure institution to park their money in.

Robinhood is known as a leading fintech company with a recognizable brand in the finance and tech communities. A strong brand name can win the trust of crypto users, as well as attract new “traditional finance” traders into the crypto space. The latter group can grow the market for crypto trading.

Commission-free trading: Robinhood already offers commission-free trading for crypto.

No other crypto exchange currently offers commission-free trading, with 26bps being the lowest fee for a U.S. exchange. This is a pain point for current crypto traders, and Robinhood can double down on this value proposition to win market share from Coinbase and other exchanges.

Improved UX: Another large pain point in crypto trading is the long lead time to deposit funds into an exchange, usually taking 7–10 days. Robinhood can leverage its instant deposit and margin features to offer instant deposits to crypto traders who want to make quick trades.

Final thoughts

All that said, Robinhood’s product team will need to make a tough decision to double-down on crypto. Even with all the potential positives, the company-wide implications must be considered in the decision-making process.

In terms of product marketing, the Robinhood executive team will need to decide if they want to position and message Robinhood as a crypto company and begin targeting crypto traders.

As for resourcing, Robinhood product and engineering teams will need to decide if they want to dedicate their resources and strategic focus on crypto products vs. their core product suite.

Given those considerations, I’d be curious to know if Robinhood PMs feel the same way as I do. If so, in the coming months and in the wake of Coinbase’s IPO, I wouldn’t be surprised to see Robinhood make a move and try to expand more into the crypto space.

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