Robinhood’s crypto revenue just grew 3x: What this means for the company’s future

I poked around Robinhood First quarter financials to see if I could learn a little more about where all that crypto income comes from and found some interesting nuggets. One is that cryptocurrencies accounted for 20% of trading revenue (which accounted for 53% of Robinhood's total revenue), up from 9% a year ago. Another tidbit is that 10% of the company's total revenue came from rebates from cryptocurrency market-making giant Wintermute, just under the 12% that Robinhood earned from its long-time partner Citadel.

The other thing that caught my attention about Robinhood's financials was the pages and pages of legal disclosures related to cryptocurrencies. Companies include these disclosures in hopes of avoiding class action lawsuits when something goes wrong and their stock price falls. In the past, there might have been a paragraph or two of cryptocurrency-related revelations; It now appears that Robinhood's cryptocurrency disclaimers are the full-time job of an overcaffeinated room of lawyers.

This is not surprising given the recent regulatory attack on cryptocurrencies. It also underscores how a good chunk of Robinhood's crypto revenue will be swallowed up by legal costs, which could include a hefty settlement with the SEC, which will sue the company for trading securities without a license. The regulatory uncertainty surrounding cryptocurrencies has allowed the agency to embark on a series of litigation that will eventually be cleared up by Congress or the courts. But for now, Robinhood will have to continue paying those lawyers.

There is also the question of how strong Robinhood's crypto business can be in the future. The company's overall trading business is already very cyclical, and this is especially the case with cryptocurrencies. In its financials, Robinhood explicitly mentions the “2021 Dogecoin surge,” when the meme token accounted for an incredible 62% of one quarter's revenue, as an example of cryptocurrency volatility. The filing also notes that "as a result of the 2022 bear markets...our daily trading revenue for options, stocks and cryptocurrencies decreased by 33%, 49% and 75%."

It's difficult to build a business around that kind of volatility, and the current surge in cryptocurrency revenue may well prove to be another short-term sugar rush. Fortunately for Robinhood, its quarterly financial statements also tell a much broader story of a company that is rapidly building a full-service operation that already includes credit cards and retirement accounts. In this context, an increase in cryptocurrency revenue will certainly be welcome for Robinhood, but it will not be a decisive factor for its success.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

DECENTRALIZED NEWS

Cryptocurrency prices to take another hit as waves of alternative currencies reach the markets through unlocks and large amounts of bitcoin are sold through mount gox and Grayscale gain. (CoinDesk)

He United States House approved a measure that would allow banks to act as custodians of cryptocurrencies, with 21 Democrats voting in favor despite Biden's warning that he will veto. (axios)

A splendid British mansion known colloquially as Effective alternative castle, bought in part with FTX loot, is on sale for £15 million. (Bloomberg)

donald trump met with a group of people who had purchased at least 47 of his NFTs and said he would make sure his campaign could accept cryptocurrency. (The block)

He Nigerian the government denied having asked binance pay a $150 million bribe to free an executive he is holding hostage, accusing the company of “fictitious claims and defamation.” (Bloomberg)

MEME OF THE MOMENT

state of the union: