Robinhood’s Dependence on Crypto Exchanges Disappoints Consumers

Robinhood has offered cryptocurrency trading for more than two years, but it still isn't clear which crypto exchanges Robinhood uses.

When Robinhood Crypto launched in 2018, some consumers were surprised that the platform relied on crypto exchanges instead of acting as its own exchange. “That’s disappointing,” wrote one Reddit user. Another user said that the news was “lame.”

As Robinhood makes moves toward an IPO, here’s what we know about the financial services company.

Robinhood’s support website reveals that its Robinhood Crypto service connects to cryptocurrency exchanges. However, the company doesn’t specify which exchanges it uses.

“When you place a market order, we display the best available price on Robinhood Crypto, which is based on the exchanges we connect to,” the site explains. “You’ll never get charged a commission or additional trading fee on top of the execution price. Any price difference you see between the estimated price and the execution price is due to market movement and isn’t something that Robinhood profits from.”

Robinhood points out the risks of cryptocurrency trading including market volatility, market manipulation, flash crashes, and cybersecurity threats. “In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing,” the Robinhood Crypto site warns.

In a five-star review of the company, Nerdwallet highlights Robinhood’s user-friendly interface, cryptocurrency trading, and no-minimum accounts. The website also pointed out the lack of retirement accounts, mutual funds, and bonds as possible cons. “If a streamlined trading platform or the ability to trade cryptocurrency are important to you, Robinhood is a solid choice,” according to Nerdwallet.

Investopedia isn't impressed with Robinhood’s offerings. The website gave Robinhood two out of five stars. “The options trading experience on Robinhood, while free, is badly designed and has no tools for assessing potential profitability,” according to Investopedia. “Even if you are a new investor only interested in buying and holding stocks, there are many zero-fee brokers to choose from now. They may not all have the flashy marketing that backs up Robinhood, but they have a lot more meat to their platform and much more transparent business models.”

Robinhood, Snowflake, and eight other companies — including Airbnb, DoorDash, and Instacart — are on Nerdwallet’s list of upcoming IPOs to watch. 

In 2018, Robinhood CEO Baiju Bhatt announced the company’s plans to go public. However, outages on the Robinhood app in 2020 might have pushed back the IPO timeline. Even though major online brokers have undercut Robinhood’s appeal by nixing stock-trading commissions, Nerdwallet reported that Robinhood still has a valuation of more than $7.5 billion.

Snowflake, another company involved in the IPO buzz, filed paperwork for an IPO with the SEC in August. Earlier in September, the company — which offers cloud-based data storage and analytics — announced that it would offer 28 million shares at a price of $75–$85 per share.