Robinhood’s strategy is likely to make them more popular. The company does not charge commissions on Bitcoin trades although it currently supports only Bitcoin and Ethereum. It plans to add more coins soon.
Robinhood is now valued at $5.6 billion after a successful funding round D that saw it raise $363 million. At that valuation, it is now the second most valuable private fintech startup in the U.S. after Stripe. The valuation was $1.3 billion after its last fundraising round a year ago and therefore has more than quadrupled.
The latest funding round, which was led by DST Global, saw Sequoia Capital, Kleiner Perkins, Iconiq Capital and Capital G (the venture capital arm of Google parent Alphabet participating.
The company, which launched Robinhood Crypto in February to let customers trade Bitcoins and Ethereum, hopes it will be available in all states in the U.S. and therefore became a close rival of Coinbase that has 20 million customer accounts. This is according to Robinhood Crypto co-founder and co-CEO Baiju Bhatt who says that he expects it to be “either the largest or one of the largest crypto platforms out there” by end of this year.
Robinhood Crypto is now available in 10 U.S. states and is expanding as it acquires licenses to operate in other states. With it, users can track market data for 16 different cryptocurrencies including Ripple and Zcash. Coinbase already allows customers to trade Bitcoin, Bitcoin Cash, Ethereum, and Litecoin.
Bhatt says Robinhood will avail more coin options and a more favorable cost structure — one without commissions — “to just quality of a product.”
Andrew Reed, a partner at Sequoia Capital that invested in Robinhood for the first time this round said the company has potential “to bring it’s low-cost and user-first approach to revolutionize large portions of financial services.” Unlike Coinbase, Robinhood is already a registered broker-dealer with the Securities and Exchange Commission. Bhatt says since the company has been through a similar regulatory process for its stock-trading product. It will likely have a head-start on any new requirement introduced by SEC in regard to cryptocurrencies. He says they are more than happy to meet new crypto regulations.
However, there will also be more competition in Bitcoin markets from Goldman Sachs. However, the parent company of the New York Stock Exchange that is planning to enter Bitcoin trading market.
Therefore, the company does not make money on cryptocurrency trading because it uses a no-commission model. It makes money, instead, from the subscription service Robinhood Gold which offers premium features. Such as margin trading and extended market hours. The company also collects interest on the deposit.
While companies such as Coinbase and Circle make around $1 billion in revenue. The $150 billion in transactions at Robinhood have saved fees worth $1 billion for investors (what they would have paid elsewhere). The company will stick to the current strategy according to Bhatt. As they are focussing on their mission to make the markets and financial services system more accessible to more people.
Additionally, the company’s brokerage accounts are now more than 4 million, surpassing E*Trade’s 3.7 million. The growth is at the backdrop of launching new products including a web version of the Robinhood app. Likewise, the commission-free options trading, and Bitcoin and cryptocurrency trading. Meanwhile “maintaining and growing one of the largest brokerages in the U.S.,” according to Bhatt.
The company will use the new funding to, among others, hire more technical talent and experienced executives to add to its now fewer than 200 total employees.