When trading service Robinhood Markets (HOOD 3.65%) reported first-quarter results on Thursday evening, management made an important statement about the cryptocurrency market. In CEO Vlad Tenev's eyes, crypto is not a fad and is greater than just another abstract idea that you can invest in.
"We believe that crypto is more than just an asset class," Tenev said on the earnings call. "By allowing anyone with a smartphone and an Internet connection to create and utilize powerful financial tools, the technology behind crypto has the potential to become the operating system that powers the future of financial services."
That's a grandiose statement with game-changing implications. I think Tenev is right, too. Let's unpack his vision of a crypto-powered global economy, and see how Robinhood is making it a reality.
Isn't this a self-serving argument?
First, that statement wasn't made in a vacuum. Cryptocurrencies are a big business for Robinhood today, and only growing more important over time.
Crypto trading accounted for 25% of the company's first-quarter revenues, up from 21% in the year-ago period. Digital assets now account for a large and stable portion of the investment assets under Robinhood's custody:
Given the scale of Robinhood's cryptocurrency business, a cynic might jump to the conclusion that Mr. Tenev has an agenda to push here, undermining the importance and validity of the whole idea.
Perhaps, but he's still right
The mere fact that Robinhood has skin in the cryptocurrency game doesn't mean that the CEO's bullish announcement is false. In fact, the company's unique market position at the crossroads of traditional investing, the digital currency phenomenon, and a relatively inexperienced user base should give Tenev a clear view of market developments.
At the same time, the executive is clearly on the right track. If crypto-based apps and services can provide high-quality financial services to "anyone with a smartphone and an internet connection," investors around the globe should rejoice over the economic value that the revolution will unlock in markets like Latin America, India, and Africa.
Billions of consumers can break free from poorly developed financial systems. That's good news for the individuals gaining better financial tools, and for the institutions and companies that develop and operate decentralized finance services in the developing world. It's also a great development for retailers and service providers who are currently held back by unreliable payment and financing systems.
Here's Robinhood's long-term crypto plan
Moreover, the CEO was quick to elaborate on the challenges that lie ahead and what Robinhood is doing to overcome them.
In order to become useful to your average consumer who has little experience with online trading systems, apps providing blockchain-based financial tools on a global scale must be easy to use with sharply reduced trading fees. The company is not only working on these issues, but is preparing to roll out real-world solutions.
"Crypto is complicated, and the fees on other platforms are so high that a lot of the products are mainly serving wealthy early adopters," Tenev said. "In the coming months, you'll see more from us on our plans to contribute to this ecosystem."
Robinhood recently supplied cryptocurrency wallets to millions of customers and introduced trading in several new crypto names. Next up, the company is integrating its trading platform with the Bitcoin (BTC -0.99%) Lightning Network, which will enable instant Bitcoin transfers at near-zero transaction fees.
That's just the start of a larger ambition. Robinhood is keeping its long-term crypto strategies under wraps for now, but we should see the company make several announcements of crypto-based decentralized finance services in 2022.
In turn, those improvements should be good news for Robinhood's shareholders. This stock is starting to look like a sensible way to invest in the cryptocurrency market without actually buying any digital coins or tokens.