Bitcoin ETFs began trading on major stock exchanges in January 2024, following the approval of the first U.S. spot Bitcoin ETFs by the SEC.

Before this, stock market investors had limited options to invest in cryptocurrencies, primarily through stocks of cryptocurrency exchange platforms like Robinhood (HOOD).

Robinhood’s earnings are largely derived from trading commissions, and despite cryptocurrency price volatility, the platform profits as long as trading volumes remain high.

In Q1 2024, Robinhood’s EPS exceeded expectations, driven by significant growth in cryptocurrency revenue.

However, Robinhood’s stock price and financial performance are highly sensitive to crypto market conditions and trading volumes, implying increased risk during a bear market.

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Bitcoin ETFs only began trading on major stock exchanges in January 2024, with the approval of the first United States spot Bitcoin ETFs by the Securities and Exchange Commission (“SEC”).

Stock market investors previously had limited ways to gain exposure to cryptocurrency markets. One such avenue was through the publicly traded stock of major cryptocurrency exchange platforms.

We have previously discussed Coinbase (COIN) which benefited from high trading activity in cryptocurrencies. Another company operating on similar dynamics is Robinhood (HOOD).

Robinhood’s earnings do not necessarily depend on the price levels. Robinhood generates revenue primarily from trading commissions.

Even if crypto markets decline, as long as trading volume remains high, Robinhood will continue to profit from commission fees.

In Q1 2024, Robinhood’s earnings per share (“EPS”) were $0.18, blowing past the analyst consensus estimate of $0.06 EPS.

Transaction-based revenue of $329 million increased from $200 million in the previous quarter and rose 59% from a year ago, primarily on cryptocurrency revenue growth. Cryptocurrency revenue of $126 million compared with $43 million in Q4 and soared 232%.

While Robinhood allows investing across different asset classes, trading activity in cryptocurrencies is highly correlated with Robinhood’s stock price performance.

Since November of 2023, Robinhood’s stock price has more than doubled as crypto trading volumes on the platform increased sharply.

If valuations of cryptocurrencies decline substantially and investor interest in crypto trading fades, as was seen in 2022, Robinhood may struggle due to lower revenues.

Robinhood’s financial performance has demonstrated a high positive correlation with cryptocurrency market conditions and volatility rather than absolute crypto asset prices alone.

Therefore, Robinhood carries a greater stock price risk should cryptocurrencies enter a bear market.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research