With SEC fines and Congressional reprimands over meme stocks and gamified trading in its rearview mirror, Robinhood has emerged as the biggest traditional broker trading crypto, especially meme coins.
By Javier Paz, Forbes Staff
The world’s 8th most valuable crypto, $39 billion (market cap) dogecoin has been on a tear. In the last 12 months the token, which represents nothing more than faith in the digital image of an adorable shiba inu dog, has gained 220%.
That’s wonderful news for Menlo Park, CA’s Robinhood, because recent SEC filings revealed that the crypto-friendly discount broker’s customers owned about 35 billion dogecoin tokens, about 24% of the memecoin’s entire circulating supply, worth about $8.8 billion today, but as much as $16.4 billion in December 2024.
Of course dogecoin is not the only crypto Robinhood’s millions of customers are fond of trading. The broker is now the leading traditional brokerage firm in digital assets and is beginning to challenge the market dominance of crypto exchange-purists like Coinbase. According to Robinhood’s fourth quarter results, released yesterday, cryptocurrencies were the firm’s number one revenue generator accounting for $358 million of its $1.01 billion in Q4 net revenues, or 35%. For the full year 2024, total revenues increased 58% to $2.95 billion, while net income was up 10-fold to $916 million.
Of the 20 or so cryptos the brokerage firm permits on its platform there are five other memecoins, BONK, Shiba Inu, Dogwifhat, Trump coin and Pepecoin, the cartoon frog sometimes associated with the alt-right. Bitcoin and Ethereum are also popular on Robinhood but so are seven zombie blockchains including Bitcoin Cash, Stellar, and Tezos. These billion dollar tokens trade actively but have almost no productive application other than to act as vehicles for speculation.
“In the Robinhood main app, we are going to keep adding [crypto assets] and continue to accelerate. In fact we have added seven new assets since the election,” said co-founder and CEO Vlad Tenev, during the company’s earnings call. “We have the engineering and infrastructure capabilities to add tokens remarkably quickly.”
It is no surprise that the billionaire founders of Robinhood, Tenev and Baiju Bhatt, who launched their upstart zero-commission brokerage in 2013 with the ostensibly noble mission to democratize investing, have again embraced a diet of junk food to nourish their crypto-hungry young traders. Robinhood has long courted rookie investors by gamifying its platform. Some 75% of its 25 million active accounts are held by Millennial and Gen Z investors. Like meme stocks, whose trading often defies traditional valuation metrics, meme coins go a step further–there are no real assets or fundamentals, period. How does one estimate the future earnings prospects of a picture of a dog with a knit cap on that has a market capitalization of $595 million?
In 2020, Robinhood’s trade-first, think-last approach got it into hot water with regulators after one of its young traders, a 20-year old college student from Naperville, Illinois took his own life in panic after the trading platform, and its inadequate customer service, led him to believe his options trading put him in the hole for $730,000. [Robinhood settled a wrongful death suit brought by his family in 2021]
Robinhood was called before Congress, which questioned not only its business practices and safety but also the source of its revenues. Since 2020, Robinhood has paid the SEC more than $100 million in fines for a range of infractions ranging from misleading its customers, to delivering subpar executions on trades and exposing its accountholder’s data to hackers.
During 2024, some 66% of Robinhood’s $2.95 billion in revenues came from what is known as payment for order flow of PFOF, which is the practice of selling its customers’ trades to Wall Street’s sharkiest hedge funds including Citadel Securities and Susquehanna International, both owned by mega-billionaires. Robinhood’s zero commissions mask the fact that behind the scenes, hedge funds are marking up and down its customers’ orders, earning a small spread. Like master poker players sitting at a table with rubes, Wall Street’s quants and algorithmic traders like Citadel not only profit from Robinhood’s customers’ trades, but use the large amount of retail trading data from these purchases to anticipate market moves and profit.
In this same way, Robinhood is also selling its crypto trades to hedge funds. After options trading, crypto trading has become the broker’s biggest transaction revenue source. At Robinhood, crypto trades on a 24 hours a day, compared to the firm’s exchange based products that trade only 5 days a week. During the peaks of crypto trading activity, like Q2 2021, dogecoin and all crypto trading represented 32% and 41% of all transaction revenue, respectively. In the most recent quarter ending December 31, 2024, when bitcoin first pierced the $100,000 mark, crypto transaction volume surged.
Based on Forbes analysis of Robinhood’s market maker disclosures, considerable portions of Robinhood’s crypto trades are being sold to crypto trading hedge funds including Tai Mo Shan, Wolverine Trading and Wintermute. Thai Mo Shan is a subsidiary of Chicago high frequency trading hedge fund Jump Trading. In December 2024 Tai Mo Shan paid the SEC $123 million for negligently misleading investors in the offering of Terra USD, the algorithmic stablecoin that imploded and collapsed in May 2022. Wintermute is a UK-based algorithmic trading firm specializing in crypto. Wolverine is a Chicago-based prop trading hedge fund.
Are Robinhood’s enthusiastic meme coin traders getting the best prices when they buy and sell Trump coin or adorable shiba inu inspired cryptocurrencies?
Robinhood insists that its costs are the lowest compared to firms like Coinbase, Crypto.com and Kraken. But don’t expect any transparency on its crypto trade executions anytime soon. Unlike its SEC-regulated broker-dealer, Robinhood’s Crypto unit is not required to give clients best execution or price improvements and there are no public disclosures of its crypto trading spreads.
For Robinhood’s stockholders, whether the company generates revenue selling shares of blue chip companies like Apple or by selling nonsense tokens to its fresh-faced traders, seems to matter little.
“They’re letting you trade crypto, equities, options, and now they’re potentially getting into sports betting,” gushes Mizuho analyst Dan Dolev.
In after-hours trading yesterday, Robinhood gained 15%. Over the last 12 months its stock is up 384%.
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