This is not necessarily a comparison post between Robinhood and other crypto exchanges. For the most part this post is about Robinhood and crypto trading on Robinhood. The reason I titled the post this way because I have seen couple of times crypto influencers speaking of Robinhood in a negative way with claims such as "It is not real Bitcoin on Robinhood". As a long time Robinhood users, I decided to share my thoughts on the topic.
It is true that buying cryptocurrencies on Robinhood is not same as buying elsewhere. Traders don't have an option to deposit cryptocurrencies such as Bitcoin from outside wallets to Robinhood account, and they are not able to send Bitcoin to outside wallets either. Moreover, there are only few cryptocurrencies that are traded on Robinhood. They are BTC, ETH, LTC, and BCH. That's it.
In essence traders on Robinhood trade the value representation of the cryptocurrencies like Bitcoin, Ethereum, and Litecoin. Isn't that the case with other exchanges as well? For example, when you trade on Binance, Bittrex, or Coinbase traders are not necessarily exchanging these cryptocurrencies but rather trading the value representation of them.
Anyone with a simple understanding of how cryptocurrencies work, knows that exchanging the actual cryptos when trading would be very inefficient due to the transaction times and fees. So, for trading purposes all exchanges including Robinhood operate the same way. Still, the critics say - "You can't move the crypto from Robinhood to outside wallet, when you can in other exchanges." It is true, however any responsible critic would also mention the advantages that Robinhood brings to the space and equally be critical of the other exchanges. Crypto influencers try to stay away from criticizing other major crypto exchanges for some reason. Perhaps there are ulterior motives.
Let's talk about Robinhood first. Yes, it has flaws just any other exchange or brokerage. We forget that Robinhood came up with a brilliant idea and brought changes to the trading industry. It was the first brokerage that came up with an idea of trading with zero fees. It was a bold move to take on a fight with a giant brokerage firms that have been in the space for decades. Many made fun of Robinhood, and said this business model wouldn't work in trading space.
Robinhood's core idea was to democratize trading in the stock markets, make it accessible to more people, especially the younger generation. They achieved that with a beautiful app that had a great UI/UX, that felt familiar for the new users. And they came up with an idea of zero fees when buying and selling stocks. Many said it was unsustainable. After couple of years, those giant brokerage firms who laughed and said it was unsustainable business model got defeated. They too decided to change their fees. More accurately, they removed the fees and brought zero fees for trades. Among these companies were Etrade, TDAmeritrade, Charles Schwab, Tastyworks, etc.
Before these changes brokerages would charge fees ranging between $7 to $10 for buying and selling. Any responsible trader takes into consideration slippage fees like this in their money management. Long story short, this was huge change. Without Robinhood, I doubt it would happen anytime soon.
While Robinhood brought zero fee stock trades, it did lack proper charting tools, options trading, etc. However, it didn't take long for Robinhood to implement options trading. Soon after, it also introduced crypto trading. It still lacks charting tools and shorting stocks. But what it has done in such a short time is incredible.
Yes, I have heard criticism how Robinhood sells data to third parties who can see the order books and perhaps front run them, etc. There were also calculations presented that even in such cases in a long run Robinhood saves its customers money on slippage. They way I look at it is, Robinhood had philosophy of democratizing trading and making it accessible to as many people as possible. And they remain true in that mission. I expect more developments and improvements coming in the future.
One of the things Robinhood lacks is the charting tools and level 2 data. Nowadays we have tools like Tradingview to analyze charts and other sources for level 2 and fundamentals. Just the fact Robinhood makes buying and selling free, easy, and convenient is good enough for me.
Now about crypto trading on Robinhood. Currently, we can only trade BTC, LTC, ETH, and BCH. At first, it was frustrating to trade crypto even with zero trading fees for me. Primarily because of placing market orders and ending up buying or selling at the prices way too high than expected to buy or way too low than expected to sell. It didn't take me too long to get into a habit of only placing limit orders. Once I started only trading limit orders, things started working out as expected. I highly recommend to stick to limit orders.
When it comes to crypto, we buy it for several reasons. Some of us buy as a long term investment or for hodling. In this case some people choose to hold the assets in the exchanges or move to personal wallets. Some of just trade crypto or do both hodl long term some assets and trade others. In both of these cases it doesn't really matter much if the exchange gives an option to move the asset to an outside wallet.
However, some choose to actually use crypto in day to day basis for purchases or sending somewhere globally. This does require the ability to receive or send the crypto from a wallet. Robinhood does fail to provide such option. It is still new in crypto, maybe in the future it will also have such options. But at the same time the ability to buy the value representation of the crypto like Bitcoin on Robinhood doesn't make of it any less of a Bitcoin, since it already covers two fo the use cases like investing or trading. With what Robinhood has accomplished thus far, I wouldn't be surprised if one day Robinhood will enable actual wallets that allow deposit and withdrawals of crypto. What I really would like to see though is more cryptos added to trading in Robinhood.
Before I move on talking about other exchanges, I should also mention one of the reasons Robinhood is a great place to trade crypto. It is that Robinhood takes cares of documentation for taxes for crypto trades. With all the regulations and tax laws being confusing regarding crypto. Robinhood does a good job of creating documents for tax purposes, so that traders don't have to worry about documenting trades on their own.
With other exchanges traders have to keep proper record of their trades to properly file their tax forms. As I said I like Robinhood because they have an idea, a philosophy that stand for and pursue it. With other exchanges I have seen much of hypocrisy. On one hand we hear exchanges like Binance, Huobi, Coinbase, etc claim they are the pioneers and leaders trying to advance the idea of decentralization. In reality there are plenty of evidences that it is not true, and they care about profits more. For any Hive user it is obvious. Since we saw first hand how dirty and corrupt exchanges can get and undermine the integrity of blockchain and decentralization for small gains. We saw that when Binance and Huobi colluded in hostile takeover. I probably will never forget that, and I remain cautious of such entities. Even Bittrex, while deserves praise not to be involved in the hostile actions itself, it did fail to call it out as such even after being put into the middle of the drama/conflict. I understand as a company Bittrex needs to follow certain legal procedures. But what I don't understand is, the silence when crime like theft is being committed. So I am not a great fan of Bittrex either because of this.
Another exchange is Coinbase. I do business with them. I hold some of my assets there. But I do not trade there. Similar to other exchanges Coinbase and its CEO claim to be a pioneer/leader in the decentralization. Yet, they fail to list Hive on their exchange or do a simple research. I have no doubt Hive is one of the most decentralized blockchains. If some leaders in the space don't see that, that tells me they are either incompetent or don't actually care about decentralization.
Another problem I have with these major crypto exchanges is the trading fee. Why do they even use percentage fee instead of fixed fees? That never made sense to me. When I traded on brokerages with fees they would usually have fixed feed of $7 to $10. Now I need to pay dozens or hundreds of dollars to sell Bitcoin on Coinbase. Really? Why are they so greedy?
In conclusion, various platforms can be used for different purposes when it comes to crypto based on individual situations. Criticizing Robinhood on lack of ability to withdraw or deposit crypto to and from outside wallets is kinda misleading and not telling the full truth. Especially, when so called leaders in the crypto space major exchanges remain corrupt, hypocritical, centralized and greedy.
I hope in the future Robinhood will continue adding new features for crypto investors/traders and become a real competition to current major crypto exchanges.
UPDATE: Due to the recent involvement of Robinhood in market manipulation by restricting users to trade on stocks like $GME, $AMC, $KOSS, etc my positive views expressed above have changed.
