Why Is Robinhood Bad For Cryptocurrency?
Robinhood is an American-based financial services company that offers a popular commission-free mobile app. Robinhood also offers buying and selling cryptocurrencies, but I’d be careful choosing Robinhood as your preferred method of purchasing crypto.
Robinhood is bad for cryptocurrency because it encourages short-sighted trading and devalues the overall market. As a result, it’s prone to speculative trades that may do financial damage to less-educated investors.
There are several reasons why both consumers and industry leaders have chosen not to use or endorse Robinhood for cryptocurrency. Read on to learn more about what experts in the industry are saying about Robinhood and why you would be better suited to choose another option.
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Why Is Robinhood Bad For Cryptocurrency?
Is Robinhood a Good Way to Invest in Crypto?
No, Robinhood is not a good way to invest in crypto. The creators and marketing of Robinhood describe what they perceive to be the best aspects of the Robinhood experience but leave out many of the downsides. For example, the platform encourages short-term trading for quick profit-making, which may lead to speculative trades.
Some of the other top reasons to avoid Robinhood for cryptocurrency:
- Deceitful commission-free trading
- Limited crypto availability
- Limited withdrawal options
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Deceitful Commission-Free Trading
Robinhood has long boasted its commission-free trading feature for stocks, and it makes the same claim for crypto. However, investors need to remember, even though you do not have to pay a fee for buying crypto on Robinhood, you still have to pay the spread.
Paying the spread means you are not paying the true market value of the product. This allows platforms like Robinhood to make profit in every purchase while technically boasting about commission-free trading. This practice comes across as deceitful because it is misleading consumers with hidden fees disguised as something free.
Related video content: Will Dogecoin Hit $1?
Limited Crypto Availability
Robinhood started as a stock trading company. While they appear to have transferred some of their efforts to be a cryptocurrency exchange, much of the functionality an investor may want is lacking.
On the surface, their commission-free trading of crypto seems like an advantage over other platforms. However, you might be surprised to learn that Robinhood only allows you to purchase seven cryptocurrencies. Other platforms such as Coinbase and Gemini have a much wider selection.
Limited Withdrawal Options
Robinhood does not currently support the withdrawal of actual cryptocurrency from your accounts. Essentially, there is no “wallet” in the app, and all withdrawals must be converted into USD. This can be problematic for many serious crypto investors.
For example, I prefer to keep my crypto in a few cold storage Ledger Nano X wallets. However, Robinhood only offers converting crypto into USD. There can be unforeseen tax consequences when selling crypto, and this is essentially unavoidable when using Robinhood.
Can You Day Trade Crypto on Robinhood?
The biggest overall problem with Robinhood is that it has not been engineered to be the best crypto app from the ground up. Robinhood, as a company, is a stock trading company that also created a crypto extension.
On the other hand, its competitors such as Coinbase and Gemini are genuine crypto apps and have not been developed as add-ons or afterthoughts in an attempt to corner another aspect of the financial management market.
A wide variety of alternative cryptocurrencies are becoming more and more popular. Some people enjoy the thrill of day trading crypto on Robinhood. That being said, Robinhood has created an app that has a few great features, but does not offer any real advantage to their customers.
You might also like: What is Bitcoin and How Does It Work?
Increase in Speculation
It might appear that Robinhood is just another company trying to cash in on the expanding popularity of cryptocurrency, and, if you choose not to utilize their product, it will not be a big deal. Except many experts are saying the opposite. In fact, what Robinhood is contributing to is an increase in the number of crypto-market speculators – the effect of which will be much more far-reaching than it sounds.
By offering limited crypto-trading access to users who cannot then reinvest their cryptocurrency directly back into the market, Robinhood is drastically increasing the overall market volatility for cryptocurrencies.
This might not sound like a big deal now, but driving up demand and facilitating the price increase of certain cryptocurrencies, without a proportional contribution to the market, Robinhood is helping to destabilize the market and make it harder for new users to have success long-term.
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Robinhood Is Contributing Misinformation
Robinhood is also increasing a level of misinformation about cryptocurrencies. They are doing this in a passive way, not by running advertisements, but by “educating” users with incorrect information.
Robinhood has a user education page that claims to offer key information about cryptocurrencies. While most of the information is technically correct, it leaves out crucial information that better underscores complex systems.
For example, Medium.com noticed that Robinhood’s descriptions and education of cryptocurrencies is lacking. The combination of semi-accurate information mixed with a tendency to increase volatility is not good for Robinhood users.
Problems with the App Itself
While the app itself is easy to use in some aspects, it has other problems and presents certain barriers to “serious” non-speculator traders than at first glance.
Robinhood has been seemingly designed to facilitate a user-friendly feel with easily accessible features. But this is not necessarily a good thing if what investors need is better education and more robust trading options.
Robinhood representatives have stated that they are working to add a feature that allows investors to cash out actual crypto into an app-supported wallet or transfer to a different wallet altogether. But, right now, that is not an option.
This limited functionality presents a host of problems for users and for the market overall. Also, it just makes Robinhood look as though they are toying around with crypto rather than committing to cryptocurrency long-term.
It Is Not as Reliable as Other Platforms
Every online company, whether represented by an app or a dedicated webpage, is going to experience some kind of problem that hinders its users. Whether that be outages, server maintenance, hacking and fraud, or just plain technical issues.
Robinhood has experienced its fair share of technical issues that negatively affected its users. Along with some competitors, Robinhood reported several dozen outages and downtime blackouts in the first half of 2021, many of which having to do with unexpected increases in traffic.
These problems can even be caused by a surge in cryptos themselves, and Robinhood is in relatively uncharted territory. Not only this, but they suffered more downtime events than many competitors in that same timeframe. This is not a good look for Robinhood considering their other issues as well.
Key Takeaways
Robinhood is increasing the number of users who are merely speculating on trades, resulting in an overall reduction of the market value of crypto while not contributing to its overall value.
Expert traders and market analysts, as well as users themselves, are not particularly impressed with the Robinhood app for cryptocurrency. It leaves a lot to be desired and without a dedicated trajectory and more sophistication that is likely to continue.
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As always, I’m Rich and until next time.
“TeachingMillionaires.com has partnered with CardRatings for our coverage of credit card products. TeachingMillionaires.com and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered. I am not a financial advisor. The information I share is for educational purposes only and shouldn’t be considered as certified financial or legal advice. It is imperative you conduct your own research. I am sharing my opinion only.”
