Robinhood Financial LLC, the company behind the free stock trading smartphone app called Robinhood, has garnered attention in the growing world of mobile brokerage services for a number of reasons. First, Robinhood offers users the opportunity to transact for free. (See also: How Robinhood Makes Money.)
Beyond that, the app is designed to be as user-friendly and uncomplicated as possible. The sleek design and ease of use have contributed to Robinhood’s success in recent years, but the primary driver of the app’s growth may have been its decision to embrace cryptocurrency trading. According to bitcoin.com, the app has achieved a valuation of more than $5 billion.
Unusual Business Model
Among competitors, Robinhood offers a unique business model. The company gives away free trades of both stocks and cryptocurrencies to its customers, taking a loss on transaction fees. The app then collects interest on escrowed cash and sells trades to market makers. It also offers a deluxe service for a small subscription fee.
One of the most compelling features of the app for many investors is its cryptocurrency offerings. Early in 2018, the Robinhood team announced plans to allow ether and bitcoin transactions through its platform. (See also: Why Did Robinhood Launch Cryptocurrency Trading?)
Co-founder Vlad Tenev explained that “cryptocurrencies have become the first foray into investing and financial services to a large number of people…we view this as an opportunity to expand our customer base and give our customers more access to functionality.”
Crypto Offering Spurs User Growth
Within days of the announcement regarding cryptocurrency offerings, Robinhood had seen more than 1 million new users join its services. This significant growth constituted a gain of about a third to its user base.
The company explained that “we’ve been overwhelmed by the enthusiasm towards Robinhood Crypto and are excited to contribute to the cryptocurrency community in a meaningful way.”
Now, the company is reaping the valuation rewards of this massive uptick in users. The report suggests that the company will be valued at roughly $5.6 billion in a new funding round. This reflects a fourfold increase in value over the span of just a year, when it was valued at $1.3 billion. The new valuation has launched Robinhood into the top 15 highest-valued private tech companies in the country.
Investing in cryptocurrencies and Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.
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