Is Coinbase or Robinhood Stock the Better Bet?

Coinbase stock has long been the obvious choice for investors seeking exposure to crypto through ownership in a publicly traded company, but another player is increasingly reaching out for this crown…

Last Thursday, Robinhood announced that it would double down on crypto through a $200M acquisition of Bitstamp, the oldest active crypto exchange in existence, which has active licenses for operations in over 50 nations!

Should you be loading up on COIN or HOOD stock?

Today, we’re exploring the differences between Coinbase and Robinhood to understand why investors are bullish on each stock 👇

🔵 The Case for COIN

Coinbase is often regarded as the most reputable crypto exchange, a distinction that has enabled it to cultivate deep ties among American crypto enthusiasts of both the retail and institutional variety during its 12-year existence.

Centralized crypto exchanges typically offer limited insights into their financials; however, Coinbase’s status as a publicly traded company on U.S. stock exchanges requires it to undergo stringent audits and file corresponding reports with the SEC, mitigating the possibility that customer funds are misappropriated.

Although any exchange’s most familiar functionality are the trading features, Coinbase is so much more than just a simple marketplace; the company is a pioneer among CEXs building onchain and has played a major role in infrastructure development, launching its own wallet and the Ethereum L2 Base!

Thanks to the implementation of EIP-4844 in Ethereum’s March Dencun upgrade, L2 costs to post data have been slashed by multiple orders of magnitudes, increasing Base’s onchain operating margins to almost 100% to allow nearly every penny of transaction fees paid on Base to be funneled directly into Coinbase’s coffers.

While Base revenues have fallen substantially off from their late March congestion highs, the network is the second largest L2 by TVL as calculated by L2BEAT and generates more margin than any other major L2, frequently netting over $100k in daily profit.

Beyond its onchain infrastructure, Coinbase offers a comprehensive suite of custody tools to its users, offering white-glove staking services – and an ETH liquid staking token – in addition to institutional grade custody solutions.

Coinbase Custody is widely recognized as the preeminent digital asset custody provider, and services eight of the eleven American spot BTC ETFs, including Grayscale’s GBTC and BlackRock’s IBIT (the two largest such products in terms of assets under management). This arrangement enables Coinbase to earn custodial fees from the assets they manage, in addition to trading fees for creations and redemptions, providing potent revenue drivers for the firm should spot crypto ETFs continue to gain traction with traditional market participants.

Crypto payments have not yet achieved mainstream adoption, but the Coinbase team has developed the infrastructure needed to make it a possibility through their Commerce platform, which enables merchants to to accept hundreds of crypto assets as payment for goods and services directly to their self-custodial crypto wallet.

Further willingness to hold crypto assets among the public and their recognition of the benefits provided by self-custodial technologies would bode well for Coinbase’s ability to generate revenue from this platform.

Coinbase also caters to international users who are unencumbered by American financial regulation and can access futures on a wide array of crypto assets through the exchange; these services could be easily expanded to the U.S. platform – which currently offers only BTC and ETH futures – should the crypto industry receive positive regulatory clarity.

As an added side benefit, owners of COIN stock receive a small amount of the upside benefits from the success of the Coinbase Ventures portfolio, which consists of lucrative private market opportunities that many retail and external investors are unable to access.

🟢 The Case for HOOD

While Coinbase dominates Robinhood in terms of the crypto transaction volumes it processes, Robinhood remains the undisputed champion for retail traders in the United States.

Even though Robinhood has fewer assets under custody on its platform in comparison to Coinbase – even when summing the former’s equity, options, cash, and crypto balances together – it enjoyed 70% more monthly active users than Coinbase during the first quarter of 2024, highlighting the exchange’s prevalence among retail traders.

Undeniably, Robinhood’s greatest strength is regulatory compliance; the exchange is regulated as a broker by the SEC, making it well-positioned to become a dominant crypto exchange should a new classification of digital asset securities within the agency’s purview be created, and their trading be restricted to only registered brokerages.

Although Coinbase is clearly the more crypto-native firm and has attracted a deep talent pool of individuals well connected within the industry, there is nothing to stop Robinhood (besides regulatory uncertainty) from creating its own crypto applications.

Robinhood has already developed its own proprietary non-custodial wallet solution and recently launched an integration that enables users to purchase crypto directly from the Uniswap Mobile App using funds from their Robinhood Connect account!

Through its proposed acquisition of Bitstamp (which could still be shot down by regulators), Robinhood acknowledges the growth potential for its crypto operations in spite of ongoing legal battles with the SEC over them and supplies confirmation that it will engage with blockchain technology to the fullest of its ability.

Bitstamp’s 4M active users based primarily out of Europe – a highly desirable demographic for its American-centric buyer – and the purchase includes the transfer of Bitstamp core products for staking and lending, enabling Robinhood to better compete against service offerings from crypto’s CEXs and underscoring that it can simply purchase crypto tech that others have developed to catch up to crypto-native competitors. 

Robinhood Doubles Down on Crypto with Bitstamp Acquisition on Bankless

Even amid an SEC onslaught, Robinhood is committing to crypto.

🧐 Takeaways

For crypto investors already bullish on COIN, it is easy to gain similar confidence in HOOD, considering the firm appears to be making an aggressive push into crypto markets and has already earned the favor of U.S. retail investors, who would be incredibly likely to size into crypto given the presence of an effortless purchase/custody solution should mania return to the industry.

Alternatively, Coinbase possesses a proven crypto performance track record and benefits from significant amounts of institutional adoption, made apparent by the preference for its services demonstrated by spot crypto ETF issuers.

Both of these publicly traded exchanges come with their own unique advantages and pitfalls, and although Robinhood is currently the underdog in this race, Coinbase’s position of dominance is anything but assured, particularly in a future with more stringent crypto financial regulations.