Why are Robinhood and Square not making a profit?

If you are in the trading game, there is a good chance you will have heard of Robinhood, the stock trading app that recently incorporated cryptocurrency as a tradable asset. The app was doing great prior to including cryptocurrency and was valued at $1.5 billion. However, after cryptocurrency was added to its portfolio, its value surged to $6 billion. Over 200,000 new users have signed up to use Robinhood every day since trading in cryptocurrency on the app became an option. The company behind the app has, as a result of this renewed interest, become the second most valuable tech startup in the world. This goes to show just how much stock is put into cryptocurrency.

Non-profit trading app

Despite the huge rise in value, the company is not making any large profits, and do not expect to do so anytime soon. This is not a problem for Vlad Tenev, who is one of the CEOs of Robinhood. According to Tenev, one of the reasons for the lack of profitability is that they do not charge users for processing the cryptocurrency trades. Considering that the platform has attracted over one million new users trading in cryptocurrency, this is a lot of money the company is missing out on. Tenev, however, is not concerned. At a fintech show hosted by Fortune, the co-CEO explained that he intends to run the company as a breakeven business. 

Meanwhile, at Binance

‘Why?’ is the question on everyone’s minds. Given that Robinhood has over a million users specifically interested in trading in cryptocurrency, they could easily use any profits generated from the transaction fees to expand their market share. For example, the cryptocurrency exchange Binance based in Malta netted itself over $200 million in profits from their customer base. This puts Binance head and shoulders above traditional financial institutions like Deutsche Bank. The CEO of Binance, Changpeng Zhao, said of his exchange:

Binance is the world’s largest cryptocurrency exchange. In the first 3 months from inception, profits amounted to $7,500,000 USD. In the 2nd quarter, profits amounted to $200,000,000 USD. The 3rd quarter is still in progress and is expected to have further growth. Any country that can attract Binance to open a branch in their location will receive a handsome tax income revenue.

Robinhood is not alone

One could speculate that Robinhood is holding off on maximizing profits given the fierce competition from Binance, and the even bigger cryptocurrency exchange Coinbase. However, it has been estimated that Robinhood could get eight-figure profits every quarter if they wanted to. So why don’t they? A company called Square, owned by the CEO of Twitter Jack Dorsey, is in the same situation. Valued at over $26 billion, Square is also just breaking even. Why not cash in?

The answer to the question is that both Robinhood and Square are playing the long game. The cryptocurrency industry could very well go on to become a multi-trillion dollar space in the near future. By keeping profits at a minimum and focusing on expanding their audience and infrastructure, Robinhood and Square are aiming at much bigger profits 3-5 years down the line. In other words, the tables might be turned on Coinbase and Binance in a few years, and Robinhood will take the number one spot. 

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