In April 2018, Millennial trading app Robinhood announced it would soon be available in a handful of states. Complex banking regulations in each state meant that they had a lot of hurdles to get over before they could offer free crypto and stock trading services in all 50 states. But in January RobinHood announced they had finally gotten a New York State “BitLicense”, one of fintech’s highest hurdles. Users in New York State can now trade on Robinhood as of May 23.
Users can now add Bitcoin, Bitcoin Cash, Bitcoin SV, Ethereum, Ethereum Classic, Litecoin, and Dogecoin to their portfolios in 39 states and Washington, D.C.
We were pretty hard on Robinhood when they first came out. They positioned themselves a “free trading app” that wouldn’t charge you a fee like the big banks would. But then we learned that they charge you and then get paid a fee from the biggest hedge funds. They also tried and failed to become a big bank themselves and were stopped when their accounts turned out not to be FDIC insured. Now armed with a proper money transmitter license, Robinhood can turn your cash into crypto—sorta.
A money transmitter license is a separate regulation for businesses that hold money for their clients. A BitLicense regulates who can operate an exchange in New York State or an exchange that is available to New York State residents. One law manages the money you put into an exchange from your bank and the other regulated the crypto assets you buy. Note: you do not need either license to develop software related to these industries.
We do have to give Robinhood props for one thing, though. They are a great way for the super small investor to learn about the markets and trading. Now that they offer fee-free trading in crypto in New York State, they can bring that same service to their user base. Their prices end up with a fair amount of “slippage,” meaning users don’t always see the final price of their transactions, but this is much better than brokers and crypto banks who charge anywhere from $3 to $15 per trade.
Using the new crypto service, for example, a user with $4.29 in fiat couldn’t buy $4.29 in BTC. An error message pops up saying, “Market orders on Robinhood are placed as limit orders at 1% above the market price in order to protect customers from overdraft.” The wording of that is a little rough. Robinhood isn’t an actual bank, so users can’t “overdraft.”
Robinhood will instead prompt users to place a “limit order” at a particular BTC price. Now it tells the user “Your order, if executed, will execute at $8,130.38 or better.” But it is not clear under what price your order will execute.
Robinhood is simplistic, but it still isn’t for kids. Users have to be 18 or older to use it. The cool kids in my high school spent their 18th birthday buying lotto tickets, tattoos, and smokes. But maybe now buying crypto will be the cool thing to do? Learning about securities in a fairly safe environment like Robinhood is maybe a better investment than cigarettes and scratch-offs.
We’ve gone deep on the limits of Robinhood as a crypto trading app before. You can read about it more in depth here. In short: you can’t “trade” BTC for ETH. You can only buy and sell at the crypto prices they offer. And you can’t actually use the crypto as a currency to, for example, buy beef jerky with Litecoin.
The interface is pretty cool too. It’s slick looking and under each crypto asset it links to the latest news that could be affecting the price. None of that is financial advice. But there’s nothing wrong with learning at a young age how markets move. Investment blogs like to repeat the quote that “It’s not timing the market, it’s time in the market” that leads to growth. Is it a top-notch crypto app? Debatable. Would buying some BTC and a little chunk of Apple stock be better than everything we wasted our babysitting money on when we were 18? Yes.
Welcome to neighborhood, Robinhood.