The collapse of FTX isn’t just a problem for Coinbase – it’s a problem for Robinhood, too

One analyst said late Monday, shortly before the US indicted FTX founder Sam Bankman Fried on multiple counts of fraud, that Robinhood Markets Inc.

This analyst, Christopher Allen of Citigroup, downplayed Robin Hood,
to neutralize buying and lowering the price target for shares of the popular stock trading app to $10 from $11. Robinhood shares fell about 2.4% on Tuesday.

Allen said Robinhood has cut costs and made its platform more attractive to active traders. But he said the uncertainty surrounding the stock market next year, as well as the cryptocurrency market crash, had led to a “mixed view” of the company.

After last year’s stock meme craze, Allen said, Robinhood’s trading activity has slowed. He said a “sustained move higher in equity markets” – which is far from guaranteed in the coming year – would be needed to spur stronger trading activity.

While stock trading on Robinhood has been stable in recent months, the analyst said he expects Robinhood’s revenue from crypto trading to drop at least 50% for this year and next. He said the shock waves from the FTX collapse could spill over into Robinhood in several ways.

One, he said, was the potential liquidation of 56.3 million Robinhood shares — or 7.4% of its outstanding shares — owned by Bankman Fried, FTX founder and former CEO, through Emergent Fidelity Technologies. Allen said the timing of that liquidation is not yet clear.

An audit of FTX also eliminated it as a potential buyer of Robinhood, Allen said. The fallout raised the potential for lower trading returns for Robinhood’s cryptocurrency segment, “given significant price declines and a material deterioration in investor confidence.”

Analysts gave similar ratings to cryptocurrency exchange Coinbase Global Inc.

Bank of America said, in a note last month, that while Coinbase COIN,
Unlikely to be “another FTX,” it continues to face “a number of new headwinds in the near/medium term due to the recent crash of rival cryptocurrency exchange FTX.” Needham analyst John Todaro said Coinbase wasn’t immune to potential “contagion” from FTX’s fall, while noting that it had “little direct exposure” to FTX.

Bankman-Fried was arrested in the Bahamas on Monday. On Tuesday, the US Attorney’s Office for the Southern District of New York charged him with wire fraud against clients and lenders, commodity and securities fraud, money laundering, and defrauding the United States.

The Securities and Exchange Commission on Tuesday also charged Bankman-Fried with defrauding investors, accusing him of funneling FTX users’ funds to Alameda Research — a trading firm he co-founded in 2017 — and attempting to conceal the money transfer.

FTX, which launched in 2019 and is headquartered in the Bahamas, filed for bankruptcy protection last month after revelations by cryptocurrency news site Coindesk about Alameda’s shaky finances — and the degree to which it was entangled with FTX — sent the exchange crashing. Binance, a major rival crypto exchange, has chosen not to proceed with the FTX bailout.

Robinhood stock is down 47% so far this year, and Coinbase stock is down 84%. In comparison, the S&P 500 SPX,
It’s down 16% over that time.

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