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Robinhood is one of the most impressive companies in the crypto space. It offers free trading to US crypto traders. Since the company was founded in 2013, it has grown to be a multi-billion dollar company. In a previous article we published on Robinhood, we talked about how they could potentially become the next "power house" in crypto. Today we dig a bit deeper and answer a question many people have, how does Robinhood make money with all their "free trading" statements?
How Crypto Robinhood Works?
If a company offers you free trading, then you should know you are the product. The company’s crypto trading wing, Robinhood Crypto was launched in 2018. This platform operates in much the same way as a casino with a lot of trades, chatter, and whales making huge moves sometimes. When a new coin is added to the platform, its price usually sees a bump, just as it happens when a coin is added to a major exchange. It is quite clear that most of the traders are unsophisticated and they usually rely on market hype.
The platform makes crypto trading feel like a game. However, Robinhood does not completely adhere to the ethos of crypto. For one, when traders trade on the platform, they do not hold the private key. As a result, they cannot gain direct access to crypto. Additionally, users of the platform cannot withdraw the crypto. Consequently, most trading on Robinhood is speculative. Examining the platform shows random movements within the platform for crypto. It is quite clear that most users are still experimenting. In essence, they just click buttons at random hoping to make a quick profit.
The Platform Is Not Actually Free
In the Robinhood user agreement, the platform states that it can pass on fees charged by crypto exchanges, liquidity providers, and other players to its users. Besides that, the platform says that it reserves the rights to receive rebates from users relating to the crypto transactions.
However, users never get to see the actual fees since they blended into sale and purchases prices based on slippage. In short, while the platform has done a lot of things to grow its user base, trading volumes, and making it easier to access financial products, there is a lack of clarity on how it operates.
It does not adhere to the founding principles of Satoshi Nakamoto. This includes basic ownership of crypto, including private and public keys. They also do not allow users to move funds when they wish to and their pricing is not transparent. It is thus easy to conclude that Robinhood does not yet adhere to crypto ethos. They have not yet embraced the principles behind the founding of crypto as users are introduced to this interesting and revolutionary economy.
Why They Joined The Crypto Space
When Robinhood joined the crypto space, it was not necessarily about trying to profit from the crypto market. The CEO claimed that the company saw it as an opportunity for customer acquisition. As visitors play with crypto, they are also introduced to more complex trading in the fiat market. With time, some could develop a genuine interest in the stock market as they hone their skills trading crypto. The result could be more profitability for the platform on the fiat side of their trading platform.