(Kitco News) – The popular stock trading platform Robinhood is doubling down on its cryptocurrency branch as a report from the Wall Street Journal indicates the brokerage firm is looking to purchase the Bitstamp cryptocurrency exchange for $200 million.
The planned expansion comes despite warnings from the Securities and Exchange Commission that the regulator intends to sue Robinhood over its already-established digital assets business.
The acquisition of Bitstamp – which launched in 2011 and operates as one of the longest-running crypto exchanges in the industry with more than 50 licenses and registrations globally – is the largest made by Robinhood to date and would allow the firm to serve institutional crypto clients and expand its crypto offerings internationally, the company said.
“Bitstamp’s highly trusted and long-standing global exchange has shown resilience through market cycles,” said Johann Kerbrat, general manager of Robinhood Crypto. “By seamlessly coupling customer experience with safety across geographies, the Bitstamp team has established one of the strongest reputations across retail and institutional crypto investors.”
Despite its provenance, Bitstamp ranks behind larger competitors like Binance, Coinbase, and Kraken in terms of monthly trading volume and active users as the exchange has taken a more methodical approach to growth and has focused on operating in line with the pace of regulatory developments.
The exchange represents a good opportunity for Robinhood to expand beyond being a trading app for newbie stock and options investors. Last year, the firm began offering support for retirement accounts, and in March, they launched a credit card. The platform also has plans to offer additional features, such as futures trading, later in 2024.
Robinhood has routinely seen its revenue from crypto trading surge during bull markets, and in the first quarter, its revenue surged from $38 million to $126 million year-over-year. The platform’s crypto assets under custody also climbed to $26 million by the end of March, double what it was the year before, while its monthly notional crypto trading volume nearly tripled y/y in April.
“Everything we’ve been doing in the past few years has been because our engagement from customers has been that they want more crypto products,” Kerbrat said. He added that once the acquisition receives regulatory approval, Bitstamp will continue to operate under its established brand.
The acquisition will also allow Robinhood to expand its crypto product offerings to international markets and help facilitate crypto-for-crypto trading among institutional clients in the U.S.
According to a Friday research report from Bernstein, Robinhood’s acquisition of Bitstamp is a strategic move by the brokerage platform to expand its crypto business and positions the company well against competitors such as Coinbase and Kraken.
Robinhood currently supports 15 cryptocurrencies for retail trading in the U.S. and more than 30 tokens in Europe, whereas Bitstamp lists over 85 tokens, the report said. The acquisition will enable the firm to offer markets with many more tokens.
“With a full exchange, HOOD gets access to global liquidity, and thus can offer the liquidity to its own broker platform, potentially improving its economics,” Bernstein analysts Gautam Chhugani and Mahika Sapra wrote.
They added that crypto exchanges offer a wide range of services such as staking, stablecoins, trading, custody, and prime broking, so the acquisition of Bitstamp could potentially allow Robinhood to offer a broader range of crypto products to a more institutional client base.
Bernstein now expects Robinhood stock (HOOD) to outperform the market and has given it a $30 price target. At the time of writing, HOOD trades at $23.38, an increase of 11.5% from Wednesday’s close, which was prior to the Bitstamp acquisition announcement.
A Thursday report from broker JMP said the acquisition of Bitstamp will “drive opportunities to broaden Robinhood’s participation in the evolving crypto value chain.”
JMP also suggested that owning an exchange will give Robinhood opportunities to connect more deeply into the crypto ecosystem and could allow the platform to get more involved in the tokenization of assets and securities. They added that the acquisition will give Robinhood more exposure to institutional clients and will accelerate the company’s buildout in Europe.
