The hyper-inflated valuation of a VC unicorn piggybacking off of what’s already a very commoditized space in the brokerage industry with an endless race to the bottom for cheaper and cheaper fees, and lower and lower margin spreads speaks to the nature of Venture-Funded garbage that’s repackaged with a bunch of tech jargon, and language about mobile app functionality. Where anyone could open a $0 low commission online brokerage with better execution, and lower spreads with greater selection of markets.
Yes, this isn’t all that differentiated among brokerage applications, and quite frankly in many ways it’s worse than many other peers in the space. But, above all, the way it’s marketed as a mobile app friendly brokerage for beginning investors, kind of plays into the fact that it’s likely that customers will eventually move onto higher quality brokerage relationships where active wealth managers execute trades on behalf of the client on top of having access to various markets like bonds, global FX, futures, and foreign equities.
The fact is, it’s really not all that differentiated from a number of other online discount brokerages, except they have lousy deposit withdrawal times, where it could take 3-5 days to clear funds from accounts, when investors have the obvious option of withdrawing funds via a wire transfer. It’s small details like this that would not appeal to larger investors who prefer having immediate access to assets, and liquidity.
But WHY Don’t They Have Liquidity?
It’s largely been reported that the company burns through a lot of cash, and had to raise an additional $1B just to meet liquidity requirements for a hyper-inflated short “squeeze trade,” involving GME and AMC, which sounds ridiculous. The fact that they can’t meet liquidity requirements already explains why they can’t withdraw funds for brokerage accounts quickly, either. Basically, they were so close to running out of deposits in proportion to assets that they had to quickly raise capital, and it’s also why they can’t return money very quickly to clients either.
However, we’re not saying that Robinhood is necessarily bad, but the heightened concerns around liquidity, and the amount of leverage on the platform suggests a pretty bad combination, especially if the GME and AMC trade eventually unwinds, and well… who knows what happens to Robinhood?
Hype ain’t about Robinhood because all eyes are on Coinbase and Kraken this year
Obviously, cryptocurrency is where the “hype” really is. With valuations hinging on the valuation of these exchanges increasing in relation to the value of bitcoin. In other words, the hype factor around major financial unicorns has everything to do with Coinbase and Kraken.
Investors are faced with a bunch of deep value brokerage/bank institutions, or there’s the too the moon hype tied to bitcoin, which lends itself to Coinbase
With coinbase leveraging BTC, and also leveraging the liquidity of public equity markets, investors won’t pay attention to Robinhood. Everyone knows it’s an awful stock brokerage for beginners, they would much rather ride the next BTC wave, or play it safe with deep value financial stocks.
It’s hard to be in the middle-of-the pack, and it’s why Robinhood will probably Bumble out the gate just like Bumble (BMBL) with a valuation below $10B failing to gain much traction, because the hype just ain’t there, and investors are already confronted with a world of options in the financial-tech, and financial services space. Just like there’s a world of options in the mobile app space, and dating apps quickly turn faddish anyway. So, just think about Robinhood’s prospects carefully before participating.
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