Robinhood Trading Platform Targeted by the SEC
We really should start out these articles with the song “Another One Bites the Dust” as the US-based trading platform, Robinhood, becomes the next trading platform to become the victim of the SEC Wells notice.
The notice was issued on May 7th, 2024, shocking both the owners and users of the platform because Robinhood trades far less cryptocurrency than other similar platforms in the space that haven’t been issued a Well’s notice.
Either way, true to their namesake, Robinhood intends to fight the SEC in court. Read on to learn more about this developing situation.
What is Robinhood?
Robinhood is a US-based trading app that got started by trading only stocks available on the US stock market. When the platform first started, they were very popular for giving all new users a free stock, and those who referred them got a free stock too, leading to exponential growth overnight.
While Robinhood is still known for its NYSE trading, it added cryptocurrency to its platform in 2018. Since then, this aspect of the app has grown to represent 12% of their total trading volume. As of May 8th, 2024, Robinhood offers just 15 cryptocurrencies on their trading platform, choosing to focus on those which are more verified rather than offering customers a chance to trade a wide variety of currencies.
Related: Ethereum and the SEC: The Drama Unfolds
What is a Wells Notice?
A Wells notice is no joking matter. It is one of the most serious notices sent by the SEC and it is a notice that the company receiving the notice is under investigation. By the time this notice is received, however, it means that they will be filing charges and that a court case is imminent.
Wells notices aren’t required to be issued; however, this has always been the practice—which is a good thing because it gives companies time to prepare to fight charges. This charge also gives the court the time to prepare to officially file the proceedings, as the SEC cannot do this on their own.
What Does This Mean for Robinhood?
Robinhood is simply next in a long list of Wells notices issued by the SEC, as both Coinbase and Uniswap are facing similar charges. Analysts, and the CEO of Robinhood have publicly stated that they aren’t afraid of the charges the SEC is filing. Additionally, they believe that business and trading will continue on normally for the platform throughout the proceedings.
Robinhood has pointed out that, unlike other platforms (Coinbase), they are very cautious about the cryptocurrencies they list, and they only list the ones which are reputable and not scams, therefore they believe the SEC will have a hard time forcing them to delist said cryptocurrencies.
They think that worst case scenario, ETH, or Ethereum will be listed as a security, and the platform will have to treat is as such. Of course, if this is the case, we expect Ethereum will do what it can to become legally registered and business for these platforms trading it will go on as normal.
There is a chance that Ethereum or ETH will need to be removed from the Robinhood site, which will be bad, as it is currently 25% of their cryptocurrency trading volume, but the CEO states they will make whatever changes are needed to keep regulatory bodies happy. Under no circumstances does Robinhood foresee itself closing or having long-term problems as a result of this notice.
We agree with the CEO, as Robinhood has always been, first and foremost, a stock trading app. Removing a single cryptocurrency, or even all of them, may be a bump in the road, but it isn’t the end of the world.
Related: Uniswap Labs Put on Notice by the SEC
When Will Traders Know For Sure?
The rash of Wells notices sent in the last few months has caused several investors across multiple platforms to panic, but the truth is, we likely won’t know anything final until the early months of 2025. The court system in the United States is notoriously slow, and we expect that both sides of every case will pull out all the stops to try and get their way.
Honestly, we wouldn’t be surprised if this entire situation drags out until 2026 or longer.
Should You Use Robinhood for Trading?
Out of all the platforms we discuss in this blog, while Robinhood is one of the most centralized, it is also the safest, especially with these Wells notices.
As we mentioned, Robinhood isn’t just a crypto trading platform, meaning the damage done by the SEC won’t reach as deep as it may for Coinbase or Uniswap. Additionally, if they do have to make changes, there won’t be any need to close accounts or withdraw money by a certain date as there may be if one of the other platforms is closed.
To top it all off, Robinhood also has excellent customer service, so if something were to happen, it is likely you would be able to get the help you need to get the money out of your account and transferred somewhere else.
After All These Notices, Where Can You Trade Crypto?
The SEC has been really cracking down on trading platforms, and at this point, no platform in the US is guaranteed safe from these court cases. While we expect many of these platforms to prevail, those who are serious traders may want to start looking at alternatives.
Of course, trading person to person is a plan, though not always viable. There are services outside the US which are safe from these notices, but you may need to be a citizen of another country in order to use them. As we said before, we expect Robinhood to be okay, so it is probably a decent idea to stick around and wait for a verdict before panicking.
Overall, it is a pain that the SEC is out to get almost every cryptocurrency trading platform out there. But know that, no matter what they do, they can never stop cryptocurrency and we are confident more services will just pop up in place of the vacuum left by those who have been closed down, so don’t lose faith in crypto just yet.
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