When the probability of volatility increases, it is important to consider the exchanges. Exchanges like Coinbase and Gemini do not concern themselves with who wins or loses in the market—their focus is solely on facilitating transactions and gaining transaction volume.

We saw evidence of this following former President Donald Trump’s appearance at the Bitcoin 2024 conference in Nashville last week where he expressed optimism about cryptocurrency and its potential.

In his speech, Trump hinted that a second term in office could usher in a crypto-friendly regulatory framework in the United States.

Trump’s pro-crypto rhetoric electrified the industry and sent the price of Bitcoin and other digital assets surging. It also boosted shares of major cryptocurrency exchanges that stand to benefit from rising mainstream adoption and investment.

Coinbase, Gemini, and other pure-play exchanges saw their stocks jump on expectations of increased trading volumes.

While not a pure crypto exchange, Robinhood (HOOD) also rallied strongly in response. As a popular trading platform for both stocks and cryptocurrencies, the exchange is well-positioned to capture growth in the crypto market.

Trading activity in cryptocurrencies is highly correlated with Robinhood’s stock price performance. Since November of 2023, Robinhood’s stock price has more than doubled as crypto trading volumes on the platform increased sharply.

Cryptocurrency transactions generate an increasing portion of Robinhood’s revenue, with Bitcoin, Ethereum, and other digital assets becoming a core part of its business model.

In its most recent quarterly earnings report, Robinhood revealed that crypto revenue had increased 232% year-over-year to $126 million. Crypto assets under custody also surged 128% year-over-year to $26 billion.

Robinhood’s earnings do not necessarily depend on the price levels. Robinhood generates revenue primarily from trading commissions.

Even if crypto markets decline, as long as trading volume remains high, Robinhood will continue to profit from commission fees.

These trends already benefited Robinhood substantially…

In Q1 2024, Robinhood’s earnings per share (“EPS”) were $0.18, blowing past the analyst consensus estimate of $0.06 EPS.

Transaction-based revenue of $329 million increased from $200 million in the previous quarter and rose 59% from a year ago, primarily on cryptocurrency revenue growth.

If a Trump presidency ushers in lighter regulation and stimulates greater mainstream adoption of Bitcoin and other digital assets, Robinhood stands to significantly benefit through higher trading activity on its platform.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

This portfolio analysis highlights the same insights we share with our FA Alpha Members. To find out more, visit our website.