The announcement this week that start-up online stock broker Robinhood will start to offer fee free trading of Bitcoin and Ethereum from February has sparked concerns the move will further fuel the cryptocurrencies ‘bubble’.
US company Robinhood, not yet present in the UK or Europe though it has long been expected to announce a launch date, offer fee-free stock trading. Sceptics, usually competitors, accuse Robinhood of simply embedding fees in bid-ask spreads and currency exchange and question the long-term viability of its fee-free business model.
The company itself denies this and says it aims to just break even, empower smaller investors, and eventually make money by offering a large user base additional services. The wider community of industry commentators is generally positive about Robinhood’s impact on the market and accuses other online stock brokers of having charged customers too much for the execution of traders.
Robinhood Crypto will launch in early February, though initially only in 5 states, and already has a waiting list said to number over 600,000. While cryptocurrency trading is not regulated, Robinhood’s stockbroking service is.
Supporters argue this provides users of the new service with increased safety as well as the convenience of being able to manage cryptocurrency investments on one platform along with more traditional asset classes such as ETFs and stocks.
The biggest dedicated cryptocurrency exchanges in the USA, such as Coinbase, charge relatively high fees. In comparison to stock trading norms, not Robinhood’s fee free model, current fees charged by cryptocurrency exchanges have been labelled ‘enormous’. However, this has not put investors off, who are chasing returns in the hundreds of percent from speculative investments in cryptocurrencies. Robinhood’s move into the space could be bad news for existing exchanges. Leigh Drogen, the CEO of Estimize, a company that estimates the financials of non-listed companies that are not obliged to publish their accounts, commented:
“They will burn this industry to the ground, cause a race to the bottom in fees, and take whatever is left.”
Critics that label Bitcoin and the wider cryptocurrencies market as a ‘bubble’ that will burst sooner or later leaving investors out of pocket to the entire value of their initial investment, are concerned that Robinhood’s move will further fuel the bubble.
Commenting on the Robinhood development, Joe Saluzzi, a partner at Themis Trading said:
“I think it’s buyer beware. It’s not a stock. It’s not a security.”
While the online stockbroker is not yet available to investors in the UK, other fee free online stockbrokers have appeared on the local market over the past year, including Freetrade and Trading 212. However, these online stockbrokers are not yet able to offer as broad a range of securities as Robinhood. The good news for cryptocurrency investors, or would-be investors, is that because the industry is currently not regulated, when Robinhood Crypto has its full roll-out, UK-based investors should be able to open an account.
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