Newcomers in the crypto world, should you choose Coinbase or Robinhood?

Original Title: 《Is Coinbase or Robinhood Stock the Better Bet?》
Author: Jack Inabinet, Bankless
Compiled by: Luccy, BlockBeats

Editor’s Note:

This article explores two companies that have significant influence in the cryptocurrency space—Coinbase and Robinhood. Coinbase has garnered a large following among U.S. retail and institutional investors due to its crypto-native background and deep roots in the industry over the years.

In contrast, while Robinhood does not match Coinbase in cryptocurrency trading volume, it still enjoys immense popularity among U.S. retail traders and possesses strong compliance capabilities. Robinhood is actively entering the crypto market, developing a non-custodial wallet, and planning to acquire the established European crypto exchange Bitstamp, further expanding its influence in the crypto space.

This article provides an in-depth analysis of the unique advantages and potential risks of both companies in the cryptocurrency market, offering valuable reference information for investors. BlockBeats compiles the original text as follows:

Historically, Coinbase stock has been the obvious choice for investors looking to access cryptocurrency through a publicly traded company, but now another company is continuously challenging that position.

Last Thursday, Robinhood announced it would spend $200 million to acquire Bitstamp, the oldest cryptocurrency exchange still in operation, which holds valid licenses to operate in over 50 countries.

So, should you increase your holdings in COIN stock or HOOD stock?

Today, we will explore the differences between Coinbase and Robinhood to see why investors have confidence in both stocks.

Reasons to Support COIN

Coinbase is generally regarded as the most reputable cryptocurrency exchange, a distinction that has allowed it to build deep connections with retail and institutional crypto enthusiasts in the U.S. over its 12 years of existence.

Centralized cryptocurrency exchanges typically provide limited insight into their financial health; however, as a publicly traded company in the U.S. stock market, Coinbase is subject to rigorous audits and must submit reports to the SEC, thereby reducing the likelihood of customer funds being misappropriated.

While the primary function of most exchanges is trading, Coinbase is more than just a simple marketplace; it is one of the earliest companies to establish a business on-chain among CEXs and has played a significant role in infrastructure development, launching its own wallet and Ethereum L2 Base!

With Ethereum implementing EIP-4844 in the March Dencun upgrade, the cost of publishing data on L2 has decreased by several orders of magnitude, and Base's on-chain operating margin has nearly reached 100%, meaning that almost all transaction fees paid on Base go directly into Coinbase's revenue.

Although Base's revenue has significantly declined since its peak at the end of March, according to data from L2 BEAT, the network remains the second-largest L2 by TVL and generates more profit than any other major L2, often netting over $100,000 daily.

Source: Dune

In addition to its on-chain infrastructure, Coinbase offers its users a comprehensive suite of custodial tools, providing advanced staking services and an ETH liquid staking token, as well as institutional-grade custody solutions.

Coinbase Custody is widely regarded as the premier digital asset custody provider and services 8 of the 11 spot BTC ETFs in the U.S., including Grayscale's GBTC and BlackRock's IBIT (the two largest products by assets under management). This arrangement allows Coinbase to earn custody fees from the assets they manage, and they can also earn trading fees through the creation and redemption of shares. If spot cryptocurrency ETFs continue to gain traction among traditional market participants, this will provide a strong revenue driver for the company.

Cryptocurrency payments have yet to achieve mainstream adoption, but the Coinbase team has developed the necessary infrastructure through its Commerce platform, enabling merchants to accept hundreds of crypto assets as payment for goods and services, directly into their self-custodied crypto wallets.

If the public's willingness to hold crypto assets increases and they recognize the benefits of self-custody technology, this will help Coinbase generate more revenue through this platform.

Coinbase also caters to international users who are not subject to U.S. financial regulations, allowing them to trade futures on various crypto assets through the exchange; if the crypto industry gains positive regulatory clarity, these services could easily expand to the U.S. platform—currently, it only offers BTC and ETH futures.

Additionally, holders of COIN stock can also benefit from the success of the Coinbase Ventures portfolio, which includes many profitable private market opportunities that retail and external investors cannot access.

Reasons to Support HOOD

While Coinbase dominates in terms of cryptocurrency trading volume, Robinhood remains the undisputed champion among U.S. retail traders.

Despite the total custodial assets on the Robinhood platform being less than Coinbase, even when combining stocks, options, cash, and crypto balances, in Q1 2024, Robinhood's monthly active users outnumbered Coinbase by 70%, highlighting the popularity of the platform among retail traders.

Undoubtedly, Robinhood's biggest advantage lies in its compliance; as a broker, Robinhood is regulated by the SEC, and if the SEC creates a new classification for digital asset securities and trading is limited to registered brokers, Robinhood is poised to become a dominant cryptocurrency exchange.

Although Coinbase is clearly the more crypto-native company and has attracted a significant amount of talent closely connected to the industry, there is nothing preventing Robinhood from creating its own crypto application aside from regulatory uncertainty.

Robinhood has developed its proprietary non-custodial wallet solution and recently launched an integration feature that allows users to purchase cryptocurrencies directly on the Uniswap mobile app using funds from their Robinhood Connect accounts.

Through its proposed acquisition of Bitstamp (which may still be blocked by regulators), Robinhood acknowledges the growth potential of its crypto business, despite ongoing legal battles with the SEC, and confirms its commitment to participating in blockchain technology to the best of its ability.

Bitstamp's 4 million active users primarily come from Europe, which is an attractive demographic for its U.S.-based buyers, and this acquisition also includes Bitstamp's core staking and lending products, allowing Robinhood to better compete with the services of cryptocurrency CEXs and demonstrating its ability to catch up with crypto-native competitors by acquiring crypto technology developed by other companies.

Key Points

For crypto investors who are already bullish on COIN, it is not difficult to also be bullish on HOOD, considering that the company appears to be actively entering the crypto market and has already won favor among U.S. retail investors. If the industry experiences another surge, these investors are likely to enter the cryptocurrency space due to the convenient purchasing and custodial solutions offered by Robinhood.

On the other hand, Coinbase has a proven track record of crypto business performance and has been widely adopted by institutions, as reflected in the preference of spot crypto ETF issuers for its services.

Both publicly traded exchanges have their unique strengths and weaknesses; while Robinhood currently finds itself at a disadvantage in this competition, Coinbase's dominance is not unassailable, especially in a future environment of stricter crypto financial regulations.