July 1 2021 - Robinhood IPO filing reveals dogecoin as one of its biggest risk factors
Robinhood Markets has officially filed for an initial public offering for the trading app that will be one of the more hotly anticipated of the coming months, but one of the most intriguing elements of the its public documents, made public on Thursday, was its dependence on dogecoin.
Trading in the meme asset dogecoin DOGEUSD, +3.40% was specifically revealed as a “risk factor” for prospective investors in Robinhood’s regulatory filing, ahead of its planned listing on the Nasdaq, under the ticker “HOOD.”
Crypto is a comparatively new business for Robinhood but one that has grown substantially in popularity, filings reveal. The trading platform, which bills itself as democratizing investing, stated that 17% of its revenues in the first three months of 2021 ended March 31, were derived from cryptocurrency transactions, up from 4% in the fourth quarter of 2020.
Dogecoin has become one of the buzziest assets in the digital-asset sector after it soared more than 5,000% on the Twitter mentions of prominent personalities, including Tesla Inc. TSLA, +0.14% CEO Elon Musk.
The rally in doge, driven by social-media mentions and an avid base of users, has propelled it to the No. 6 largest crypto in the world, according to CoinMarketCap.com.
But the meme asset was created as a lighthearted alternative to bitcoin back in 2013 and its staying power as bona fide crypto isn’t assured. To be sure, no crypto’s existence over a long period is assured.
But billions of dollars are behind bitcoin, the world’s largest crypto by value, and the No. 2 asset Ether ETHUSD, +7.15% on the Ethereum blockchain.
Bitcoin boasts a market value of 9 billion, Ether’s total value is 7 billion, while dogecoin is tiny by comparison at billion.
Hugh Tallents, a senior partner at boutique business consulting firm cg42 said that it should be concerning to investors that Robinhood is deeply entrenched in a meme asset.
“With dogecoin and some of the other outlandish [memes], it is just a videogame that will end up with a lof of people that will get financially hurt and Robinhood will be at the crosshairs of enabling that,” Tallents told MarketWatch.
The revelation of Robinhood’s dependence on dogecoin and crypto also raises another curiosity in crypto circles that has become a bit of parlor game.
Back in February, digital-asset enthusiasts became briefly obsessed with speculation linking Robinhood to a dogecoin wallet address that was valued at around .1 billion.
The Wall Street Journal in February reported that it had identified records that showed that a person, or entity, owned about 28% of all of dogecoin in circulation—a stake worth about .1 billion at the time.
That stake is presently worth more than .5 billion at dogecoin’s current value of around 25 cents per coin, according to CoinDesk data, translating to roughly 42 billion doge, assuming the address didn’t accumulate or sell any coins since February.
Vlad Tenev, CEO of Robinhood Market in the past has said that “any coins that [the company holds] are for the purposes of sort of providing access in holdings for our customers. We don’t have significant positions in any of the coins that we keep on a proprietary basis or anything like that.”
Robinhood’s IPO paperwork indicates that its business would be adversely affected, and growth in “our net revenue earned from cryptocurrency transactions may slow or decline, if the market for Dogecoin deteriorate or if the price of Dogecoin declines,” including as a result of factors such as negative perceptions of Dogecoin or the increased availability of Dogecoin on other cryptocurrency trading platforms.
Rival trading platform Coinbase Global COIN, -0.30%, a pure-play crypto platform, began offering Dogecoin on its platform recently, citing the impact of rivals eroding its market share.
Dogecoin’s year-to-date gains are stellar but it is down 66% from its early May peak at 74.07 cents.
A request for comment from Robinhood wasn’t immediately returned.
Meanwhile, traditional markets are climbing, with the Dow Jones Industrial Average DJIA, +0.44%, the S&P 500 index SPX, +0.75% and the technology-laden Nasdaq Composite Index COMP, +0.81% trading at or near all-time highs.
But Robinhood’s filing suggests that the online brokerage has hitched its wagon closer to the growth of crypto and in particular a meme segment of the inherently volatile asset.
Robinhood’s filing shows that it generated 2 million of revenue in the first quarter, mostly from trading activity, more than quadruple its level from the first quarter of 2020. However, it reported a first-quarter loss of .4 billion, which is tied to its GameStop Corp. GME, -0.75% trading volatility earlier in the year.
The company has set aside some 35% of its issuance to individual investors, if they invest via the Robinhood app.