Robinhood Crypto Warnings & Coinbase Future - What's the Connection?

Is the Surge in Trading Activity of 2020 and 2021 Diminishing?

The question of whether the heightened trading activity observed in 2020 and 2021 is waning has been a central focus for The Exchange. This consideration arose following the release of Robinhood’s recent IPO filing.

The widely-used, U.S.-based investing application communicated to investors within the filing that a decrease in revenues is projected for the third quarter, when contrasted with its performance in the second quarter.

The company specifically attributed this anticipated revenue reduction, in part, to the exceptionally high cryptocurrency trading volumes experienced in previous quarters.

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This naturally prompted a consideration of Coinbase.

It is reasonable to suggest that both Coinbase and Robinhood maintain a sufficiently optimistic outlook regarding the cryptocurrency market to remain unfazed by temporary fluctuations in crypto trading volumes.

Coinbase, for instance, addressed the cyclical nature of consumer engagement with cryptocurrency trading within its own IPO documentation.

Having already navigated periods of both growth and contraction in the crypto market, the now-public company is well-positioned to withstand a potential dip in consumer interest over the coming months or quarters.

This is contingent upon maintaining a long-term perspective and the realization of the crypto-centric future envisioned by its proponents.

The Impact of Cryptocurrency Demand

The substantial increase in demand for cryptocurrencies among U.S. consumers significantly benefited numerous companies in recent periods.

Coinbase reported exceptionally strong results in early 2021, driven by a bullish trend in cryptocurrency prices that spurred retail participation and increased trading fees.

Robinhood also experienced a surge in crypto demand, a phenomenon previously examined by TechCrunch.

Furthermore, Square has witnessed a considerable expansion in its cryptocurrency revenues.

While interest in equities and options trading also contributed to the improved financial performance of many consumer fintech companies during the COVID-19 pandemic-induced savings and investment boom, crypto revenues played a substantial role.

Let's analyze both scenarios, utilizing the latest information from Robinhood as a focal point.

Robinhood’s IPO Filing: Cryptocurrency Insights

Robinhood’s recent initial public offering (IPO) filing contained 316 references to “cryptocurrency.” We will focus on the most significant of these mentions.

For background, Robinhood released preliminary Q2 data, which was previously analyzed in detail. However, following the release of concrete figures, Robinhood provided noteworthy observations regarding the current quarter (as highlighted by TechCrunch).

Within a discussion of key performance indicators, such as funded accounts, Robinhood made the following statement (emphasis from TechCrunch):

Revenue Trends and Growth

Declining revenue coupled with decelerating Key Performance Metric (KPM) growth isn't ideal to present during an IPO process. An examination of Robinhood’s 2020 revenue suggests it’s improbable the company will demonstrate year-over-year growth in the latter half of 2021.

Nevertheless, the period of substantial revenue expansion that Robinhood experienced appears to have concluded, having achieved top-line growth in each quarter since Q4 2019.

Cryptocurrency Volatility Acknowledged

Robinhood explicitly acknowledges the inherent volatility of cryptocurrencies within its IPO documentation. Several comments emphasize the associated risks:

Furthermore:

Monitoring Dogecoin Trading

The Exchange regularly monitors Dogecoin trading volume to assess the potential performance of venture-backed startups preparing for an IPO. This practice provides valuable insight into market dynamics.

Implications for Coinbase

Coinbase caters to a distinct clientele compared to Robinhood, suggesting that fluctuations in cryptocurrency trading volumes observed on the latter platform may not directly correlate with those experienced by the former. However, current market signals indicate that Coinbase might not be poised for continuous expansion.

Specifically, the company’s stock price has decreased from a peak of $429.54 per share following its direct listing to approximately $232 as of today. It’s also noteworthy that Coinbase initially established its direct listing reference price at $250, a level it has subsequently fallen below.

Generally, stock values don't typically decrease when investor confidence in a company’s future earnings potential increases.

Despite these challenges, positive indicators exist. Data from Bitocinity reveals an upward trend in Coinbase’s bitcoin trading volume since reaching its lowest point in September 2018. This long-term pattern in bitcoin volume could be favorable for Coinbase and other financial technology companies involved with cryptocurrencies, irrespective of short-term market conditions.

It’s unsurprising that this discussion is occurring following a cryptocurrency market downturn that briefly pushed bitcoin’s value below $30,000. Consumer engagement with cryptocurrencies often correlates with price appreciation.

Furthermore, investor optimism regarding the broader cryptocurrency industry remains. This is evidenced by a recent news item: “Crypto Exchange FTX Valued at $18 Billion in Funding Round.” This report was published yesterday.

While Robinhood is signaling a potential slowdown in the growth of its cryptocurrency-related business, this won't deter dedicated enthusiasts.