Robinhood Markets (HOOD 4.44%) just released updated crypto trading numbers for May, and they're bad. As in really bad. In May, total crypto trading volume was $2.1 billion, which was down 43% on a month-over-month basis and 68% on a year-over-year basis.
Given all the uncertainty in the crypto markets, that makes sense. The average investor just isn't willing to pull the trigger on a crypto trade right now.
Obviously, as a short-term play, Robinhood doesn't make a lot of sense. But what about as a long-term play? After all, the company is still a go-to investment for the likes of Ark Invest's Cathie Wood, who picked up additional shares in May. Let's take a closer look at why Robinhood could be a very sneaky contrarian investment.
In search of the retail crypto trader
From my perspective, the viability of Robinhood Markets as a long-term crypto play comes down to a simple question: How do people prefer to invest in crypto?
Do they prefer using large centralized cryptocurrency exchanges like Coinbase Global (COIN 5.68%) or new decentralized cryptocurrency exchanges? Do they prefer using trusted mobile apps they probably already have on their phones, like PayPal (PYPL 2.90%), or combining their stock and crypto trading under a single umbrella, as they can with Robinhood?
Image source: Getty Images.
This is where I think Robinhood can win. Increasingly, investors are viewing crypto as just another asset class to buy, hold, and sell. So why wouldn't they want to house all of their trading activity in one place?
The Robinhood mobile app does a great job of this. It clearly separates all of your trading activity, such that crypto activity is always independent from your other brokerage account activity (such as stocks and options).
Right now, Robinhood only offers 15 cryptos for trading. This is more than enough for the casual investor, especially when you keep in mind that, even on Coinbase, most of the trading activity is focused on just two cryptos: Bitcoin and Ethereum.
Crypto trading on Robinhood doesn't feel like the Wild West, as it can on specialized cryptocurrency exchanges, where you can choose from hundreds of cryptos. And it doesn't feel as limited as it does on PayPal, which only offers a handful of cryptos to buy.
The long-term investment thesis for Robinhood is based on the notion that, as crypto trading becomes more and more mainstream, it's going to be in a sweet spot to attract new daily users interested in crypto. That, in turn, will lead to growth in crypto transaction volume and help make the crypto trading volume numbers for Robinhood less volatile on a month-to-month basis. At the same time, the company will continue to introduce innovations (such as Robinhood Wallet) specifically geared to the crypto investor.
The regulatory wild-card factor
One issue to keep in mind is the regulatory landscape. The Securities and Exchange Commission is cracking down on cryptocurrency exchanges like Coinbase, so that might actually open up an opportunity for Robinhood. Retail investors wary of big centralized crypto exchanges might decide to move over to Robinhood, which has thus far managed to avoid any regulatory snafus.
Just this month, the company delisted three popular crypto tokens, purely out of an abundance of caution after the SEC signaled they might be considered securities. In short, it has performed the tightrope walk with the SEC very well, and a large part of that has to do with avoiding controversial crypto tokens.
Should you buy Robinhood?
Right now, crypto trading is only a small piece of the bigger puzzle for this stock. There's a reason the price of Robinhood stock has stalled out at the $10 mark and is down nearly 75% from its July 2021 initial public offering (IPO) price.
The company has been consistently unprofitable, and many of its competitors have caught up. Thus, Robinhood may still be too speculative for risk-averse investors.
However, as a long-term play on the future of the crypto industry, Robinhood Markets could be a sneaky play. If you take a look at the Schwab Crypto Thematic ETF, which invests in stocks related to the crypto industry, Robinhood is its 10th largest holding.
This stock could make sense as part of a broadly diversified portfolio if you're looking for exposure to the crypto industry. As soon as the next crypto bull market arrives, Robinhood could start to see some real improvement in both its top-line and bottom-line numbers and begin to fulfill some of its early promise.
