Can Robinhood catch up with Coinbase?

Hey!

Robinhood has quietly built one of the largest crypto marketplaces in the U.S. Although they are still smaller than Coinbase, they can leverage their loyal brokerage customers to scale this business quickly. And the pending acquisition of Bitstamp will further help them reach Coinbase's scale.

Of course, Coinbase $COIN ( ▼ 5.03% )  has been diversifying its revenue streams and is years ahead of Robinhood $HOOD ( ▼ 7.1% )  in many areas. Some of Coinbase’s revenue streams, such as prime financing and institutional custody, seem to be out of reach for Robinhood, at least in the foreseeable future.

However, the real battle may begin when securities tokenization takes off. Robinhood would have a head start, but it's unlikely that Coinbase would ignore this opportunity. This is a rivalry between two great Fintech companies, and I think that it doesn’t matter which side you’re on - both companies are just getting started.

Jevgenijs

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In the autumn of 2022, which was a very dark period for crypto, I wrote: “Vlad Tenev is steering the company towards profitability, while Brian Armstrong is ready to suffer through the losses until the market returns to growth....perhaps, Brian Armstrong is just more bullish on the crypto market.”

Coinbase continued to build through the bear market and through the hell that the SEC brought to the industry. Robinhood had its brokerage business to protect, so it took a more conservative approach, including aggressively cutting costs to reach profitability and delisting Solana and Polygon to avoid legal troubles.

Nevertheless, Robinhood still managed to build “one of the largest crypto marketplaces in the U.S.” So when the presidential election results sparked a surge in crypto trading, Robinhood was there. In Q4 2024, Robinhood customers traded $71 billion in crypto, nearly matching the total volume from the first three quarters of the year.

In 2024, the crypto trading volume on Robinhood was $143 billion (up 259% YoY), which compares to the $221 billion retail trading volume on Coinbase (up 195% YoY). Coinbase also has institutions trading on its platform, but I will touch on this later.

Interestingly, during the previous crypto cycle, in Q2 2021, Robinhood's crypto trading volume surpassed that of Coinbase. Robinhood supported only seven cryptocurrencies back then, and the surge in the transaction volume was primarily driven by trading in DOGE. However, it had its loyal brokerage client base to tap into.

So what is Robinhood Crypto and can they compete with Coinbase? Robinhood launched crypto trading in the U.S. in 2018 and expanded to the European Union at the end of 2023. Robinhood also launched a non-custodial wallet in 2022 (though it did a full rollout only in 2023). Nearly half of Robinhood’s brokerage clients also trade crypto (12 million out of 25 million).

Robinhood generates considerably less revenue from crypto trading than Coinbase. Thus, in 2024, Robinhood generated $626 million in crypto trading revenue (up 363% YoY), which compares to $3.43 billion in retail trading revenue for Coinbase (up 157% YoY).

In addition to lower volumes, Robinhood also has a lower take rate than Coinbase. Competitive pricing is a strong value proposition for Robinhood. However, Robinhood has been consistently increasing its take rate. Thus, Robinhood’s take rate increased from 0.23% in Q1 2022 to 0.50% in Q4 2024. I believe Robinhood has further room to increase its take rate without sacrificing its value proposition (just check Coinbase’s take rate below).

In June 2024, Robinhood announced the acquisition of Bitstamp, a “globally-scaled crypto exchange with retail and institutional customers across the EU, UK, US, and Asia”. The deal is expected to close in the first half of 2025. The combined trading volume of Robinhood and Bitstamp is on par with Coinbase's retail trading volume.

In Q4 2024, international business contributed 19% to Coinbase’s revenue. Based purely on Robinhood’s and Bitstamp’s trading volumes in 2024 ($143 and $109 billion respectively), I would expect Bitstamp to contribute more than 19% to Robinhood’s crypto revenue. This is important because the lack of regulatory clarity prevents Robinhood from launching some of the services in its home market, the U.S. (e.g. staking).

However, in addition to turbocharging Robinhood’s trading volumes and international expansion efforts, Bitstamp gives Robinhood an entry into the institutional business. During its Investor Day 2024, Robinhood estimated global institutional crypto trading volume to be $12 trillion (vs. $3 million of global retail trading volume).

Currently, Coinbase is the preferred platform for institutions to trade crypto. Thus, in 2024, institutions traded $941 billion in crypto through Coinbase (up 140% YoY). As you can see on the chart below, institutional volumes dwarf retail volumes.

…but the take rate in institutional trading is lower, and, in 2024, Coinbase earned $346 million from institutional trading, which is considerably lower than the $3.43 billion that Coinbase earned on retail trading. So even if Robinhood can challenge Coinbase in the institutional space (which I would expect to take years), retail will remain the key revenue driver.

Coinbase also has Base, its L2 blockchain. This revenue stream is still a minor contributor (reported under “Other transaction revenue”); however, Base was launched only in Q3 2023, so it is growing fast. Coinbase management expects Base to become a meaningful contributor to the company’s revenue and profits in the future. I haven’t heard anything about Robinhood launching an L2 blockchain.

In summary, when it comes to trading revenue, I think Robinhood is a solid competitor to Coinbase in the retail segment, especially once it completes the acquisition of Bitstamp. However, I am somewhat skeptical about their ability to catch up with Coinbase in the institutional space. Coinbase is also heavily investing in Base, which will allow it to capture DeFi opportunities.

However, there is more to that than just trading revenue. Coinbase has also diversified its revenue beyond trading fees. Thus, Coinbase’s “Subscription and Services” revenue increased from $45 million in 2020, to $2.31 billion in 2024. This revenue stream includes stablecoin revenue, staking revenue (“blockchain rewards”), custody, interest income, and other non-trading fees.

Depending on the jurisdiction, Coinbase allows staking eight assets and, at the end of 2024, “approximately $15.2 billion worth of crypto assets were held on behalf of individual consumers staked through the Coinbase platform.” In addition, Coinbase stakes its own crypto assets. In 2024, staking generated $706 million in revenue for Coinbase (reported as “blockchain rewards”).

Robinhood offers a staking service in the EU, but its EU business is too tiny to provide a meaningful contribution. However, once Robinhood completes the acquisition of Bitstamp, it will have a higher footprint in the markets, where staking is allowed. And, of course, the key unlock would come from the new administration establishing a legal framework to allow staking services in the United States.

Coinbase doesn’t own a stablecoin, but it helped create USDC and has a commercial arrangement with Circle where “it earns 100% of the revenue for USDC that it holds on its platform, and 50% of the revenue for the off-platform balances”. In 2024, this commercial arrangement with Circle generated $910 million in revenue for Coinbase.

Robinhood is also entering the stablecoin business. Thus, last year it partnered with Galaxy Digital, Kraken, Nuvei, and Paxos to launch the Global Dollar Network and the Global Dollar (USDG) stablecoin. It is unclear (or I am not aware of) how the interest earned on USDG reserves will be distributed between the network partners, but would assume a similar arrangement as Coinbase has with Circle for the “on-platform balances.”

Coinbase also generates “Subscription and Services” revenue from other services, such as Prime financing and custody. However, I’d expect some of these revenue streams to be out of reach for Robinhood until they build scale in institutional business.

Therefore, in summary, Robinhood can tap into non-trading revenue streams such as staking and we will hear more about the revenue it generates through the adoption of USDG stablecoin. This will require time and regulatory clarity, but in theory, this seems achievable.

However, if we try to think about this rivalry over a longer term, the real battle may begin with the tokenization of real-world assets, and specifically, securities. Of course, this requires a legislative basis, but seems like both, Vlad Tenev of Robinhood and Brian Armstrong of Coinbase, are very excited about this opportunity.

I would think that Robinhood would have a head start in this given their brokerage business. However, it would be unrealistic to assume that Coinbase couldn't leverage its customer base if it decided to launch a brokerage business. While Brian Armstrong has repeatedly stated that he isn’t interested in a traditional brokerage, a tokenized version of one could be a different story.

Let’s see if the tokenization of securities becomes a thing. Until, then we can enjoy observing the competition between two great Fintech companies for the crypto trading business. I also think that it doesn’t matter which side you’re on - both companies are just getting started.

Cover image source: Robinhood

Disclaimer: Information contained in this newsletter is intended for educational and informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions.