Robinhood’s Bitstamp Deal Could Be What Catapults It Into Crypto’s Big Leagues
Plus, the latest on Synapse and its former CEO, Affirm and Apple Pay, and Revolut’s UK banking ambitions.
Number of the Week: $4.47 billion (explanation below)
Robinhood’s Bitstamp Deal Could Be What Catapults It Into Crypto’s Big Leagues
Robinhood Markets’ $200 million all-cash deal to buy Luxembourg-based cryptocurrency exchange Bitstamp underscores the trading platform’s ambition to push further into crypto, with the dual objective of attracting more institutional clients and trading a wider number of tokens in more markets globally.
But the acquisition’s overall significance and eventual impact could be far larger than what appears at first blush. After the deal closes, expected in the first half of 2025, it could mark the start of a chapter that catapults Robinhood into crypto’s big leagues and finally enables it to get out from underneath the at-times egregious operational missteps that have plagued the trading platform before and since going public in July 2021—even with a Wells notice from the U.S. Securities and Exchange Commission (SEC) currently hanging over its head.
While some analysts do not expect the acquisition to be materially accretive, Bitstamp will give Robinhood access to global liquidity that, in turn, will allow it to “offer the liquidity to its own broker platform, potentially improving its economics,” Bernstein analysts Gautam Chhugani and Mahika Sapra said in a research report.
Bitstamp is ranked 16th of the top 20 crypto spot exchanges globally—behind leaders Binance, Coinbase, OKX, Bybit and Upbit—by CoinMarketCap, which scores crypto exchanges based on traffic, trading volume, average liquidity and confidence in the legitimacy of reported trading volumes. (Statista ranks Bitstamp 80th out of 100 crypto exchanges globally based solely on 24-hour trading volume.)
At present, U.S. retail investors can buy and trade 15 crypto tokens on Robinhood, while European retail investors on the trading app have access to more than 30 tokens. Robinhood has the potential to significantly expand its crypto business with Bitstamp, which lists up to 85 coins and tokens, holds more than 50 active licenses and registrations, and has retail and institutional customers in the United Kingdom and Europe, the United States and Asia. Robinhood’s Johann Kerbrat, general manager of crypto, said the Bitstamp acquisition “was a big step forward in international expansion” for the trading platform in a recent CNBC Crypto World segment.
Bitstamp is the company’s seventh acquisition. Since 2019, it has purchased an interesting mix of companies, including Chartr (a data visualization platform that’s now part of Robinwood-owned Sherwood Media), X1 Card (a no-fee credit card that continues to only support existing cardholders; new applicants to X1 are redirected to Robinhood Gold), Cove Markets (a cross-exchange trading platform), Say (a shareholder-company communications platform), Binc (a recruiting firm) and MarketSnacks (now Robinhood Snacks, a daily financial news podcast and newsletter).
Bernstein’s Chhugani and Sapra have been increasingly bullish on Robinhood’s crypto advancements and see big things on the horizon. In March, the research analysts forecast that its stock will jump 83% over the next year, benefiting from what they labeled a “monster of a crypto cycle over 2024-25.”
Early signs of that potential are already starting to show. In the first quarter 2024, Robinhood reported record results. Total net revenues increased 40% year over year to $618 million, driven by transaction-based revenues of $329 million, up 59% YoY, including $126 million in cryptocurrencies revenue (up 232%), $154 million in options revenue (up 16%) and $39 million in equities revenue (up 44%). Net interest revenues increased 22% YoY to $254 million, driven by growth in interest-earning assets and higher short-term interest rates, while “other” revenues were up 35% YoY to $35 million, largely boosted by higher Gold membership-based subscription revenue. Notably, its net income increased YoY to $157 million.
Robinhood posted “a strong beat on top-line and adjusted EBITDA driven by options and crypto activity,” Needham analyst John Todaro told Kiplinger, noting that crypto volume was up three times over Q4 2023.
Robinhood’s market cap is presently $20.48 billion—more than halved since August 2021 when it was $46 billion, but up sharply from a low of $6 billion in June 2022.
Three and half years ago, though, things at Robinhood seemed dire, in large part due to a series of self-inflicted wounds that threatened to take the company down in what FIN Founder and then-Editor in Chief James Ledbetter labeled a “fintech suicide.” At the time, the company faced constant complaints of inadequate customer service, and its trading app was at-times dangerously glitchy. It was slapped with a $65 million fine from the SEC for making “false and misleading statements” about its use of payment for order flow, and then a $70 million fine from the Financial Industry Regulatory Authority (its largest ever given) for misleading customers and system outages. It was confronted with a wrongful death suit tied to a 20-year-old retail trading customer’s suicide (it settled the lawsuit). It was nearly toppled by the Reddit-fueled GameStop and AMC hysteria, which compelled Robinhood to halt trading over liquidity concerns. Robinhood CEO Vlad Tenev denied that the company had a liquidity problem in an interview with CNBC’s Andrew Ross Sorkin, only to then turn around and hastily raise $1 billion from investors. (The GameStop chaos also triggered a class-action suit.)
In early May, the SEC served Robinhood Crypto, part of Robinhood Markets, with a Wells Notice alerting the company that the agency is considering enforcement action against its crypto unit for possible securities violations. “We firmly believe that the assets listed on our platform are not securities, and we look forward to engaging with the SEC to make clear just how weak any case against Robinhood Crypto would be on both the facts and the law,” said Robinhood Markets’ Dan Gallagher, chief legal, compliance and corporate affairs officer, in a statement following receipt of the notice.
KBW analysts predict that Robinhood will likely “fight the SEC in court and has a higher likelihood to prevail than most U.S. competitors (if put in similar situations) given [Robinhood’s] stricter listings standards.”
For now, Robinhood has its sights set on international expansion and upping its institutional client base so that it’s better positioned to compete with industry giants Binance and Coinbase. Who would have thought that possible just a few years ago?
Noted & Noteworthy
In a you-absolutely-won’t-believe-this moment, Sankaet Pathak, founder and ex-CEO of the now-bankrupt Synapse, is apparently not letting his company’s colossal failure get in the way of his startup ambitions and fundraising initiatives. Pathak has reportedly founded a new venture, Foundation Robotics Labs (also referred to as Foundation), and received a $10 million commitment from Tribe Capital while seeking to raise another $1 million in its seed round.
The capital raise by Pathak for the humanoid and robotics software startup comes despite what should be alarm bells going off in light of Synapse’s bankruptcy proceeding, in which it was revealed that $85 million in customer funds has gone missing (not exactly sofa change) and many customers still have no access to their accounts.
Fintech Business Weekly’s Jason Mikula reported that Pathak filed paperwork on April 5th to incorporate the startup, listing the principal place of business in San Francisco. Mikula posted on LinkedIn that “multiple sources” told him the company is in “stealth mode” and that it plans to build “humanoid robots” to do work in factories and warehouses that is normally performed by people. In an X post, Mikula posted a video from a “confidential source” claiming to show a prototype from Foundation Robotics. (He noted the creepy video—emphasis FIN’s—has not been authenticated.)
In a fundraising email recently sent to investors and obtained by Fintech Business Weekly, Cobalt Robotics Cofounder Mike LeBlanc and Tribe Capital Cofounder Arjun Sethi are cited as cofounders of Foundation Robotics and also claims that “General Motors is going to be its first customer and that it is targeting a $300 million purchase order with the auto manufacturer.”
Mikula said that requests for comment from Pathak, LeBlanc, Sethi and Tribe Capital weren't immediately returned. A General Motors spokesperson issued the following statement to Fintech Business Weekly: “GM has not been in discussions with Foundation on a contract, investment, or even a proof of concept.” Further, in a response to Mikula’s LinkedIn post on Foundation’s claims, General Motors’ Darryll Harrison, vice president, global technology communications, said: “GM has never invested in Foundation Robotics and has no plans to do so. In fact, GM has never had an agreement of any kind with the company. Any claims to the contrary are fabricated.”
The startup is seeking a valuation of between $100 million and $200 million, according to The Information, which has also reviewed a copy of Foundation’s investment memo.
CNBC also obtained the investment document, which was “shared in an email group with 1,500 startup executives and investors, according to one of the recipients.” It also reported the investor pitch was filled with fabrications, including that: “GM agreed to let us collect the ground truth data in their factories. Our team is in their Mexico factory this week to start the collection process. We would probably be the only company in this space with a dataset like this.”
GM told CNBC that it met with Foundation executives several times, but denied all the startup’s other claims and stressed that it has no plans to invest in the company. Foundation’s LeBlanc confirmed this to CNBC, saying “he was embarrassed that marketing materials existed that overstated their relationship.”
But not embarrassed enough, apparently, to cut ties with Pathak.
Meanwhile, the Synapse bankruptcy proceeding has taken an even more terrible turn—and customers have $85 million worth of reasons to be angry. Former Federal Deposit Insurance Corporation Chair and bankruptcy trustee Jelena McWilliams found that the Banking-as-a-Service provider’s partner banks hold about $180 million in customer demand deposit and For Benefit Of (FBO) accounts, but there's a rather large shortfall. The customers are actually owed $265 million—$85 million more than is on hand. “The source of the shortfall, including whether end user funds and negative balance accounts were moved among Partner Banks in a way that increased or decreased the respective shortfalls that may have existed at each Partner Bank at an earlier time, is not known at this time,” McWilliams wrote in the report filed with the U.S. Bankruptcy Court for the Central District of California. “It would take some Partner Banks several weeks (if not longer) to completely reconcile which payments among the Partner Banks relate to which Fintech Partner accounts and agree on the amounts due to Fintech Partners and their underlying end users by each Partner Bank.” Even worse, no money exists to pay for a forensic accountant to trace the money movements between Synapse’s partner banks and customer accounts.
At a recent hearing, Judge Martin Barash referred to the case as “uncharted territory” and “a crisis,” expressing concerns that his hands might be tied in terms of a bankruptcy court order because the money owed to customers “is not the property of the Synapse estate,” according to CNBC. While some demand deposit account customers have regained access to their accounts, FBO accountholders are in for a longer haul to recover their funds, with the very real possibility that they might not be made whole for a long time. Neither of the options put forth by McWilliams for FBO accountholders are appealing: One, pay some customers in full and delay payments to others until individual FBO accounts are reconciled, or divide the shortfall evenly and pay all customers that same sum so that they have access to limited funds faster.
In yet another move that will expand the appeal and reach of buy now, pay later (BNPL) services, Affirm and Apple are joining forces. Later this year, the companies plan to give Apple iPhone and iPad users the option to apply for BNPL loans directly from Affirm when using Apple Pay to make purchases. When asked during an appearance on CNBC Closing Bell why there is no revenue impact expected from the partnership in fiscal 2025, Affirm CEO Max Levchin said: “We think in years and, we hope, decades—not the next three, six, 12 months. It’s just always a good idea to aim really high and take your time to build something worth building.” (If you missed the interview, it’s worth watching as Levchin goes into detail about Affirm’s strong underwriting capabilities.) News of the Affirm-Apple partnership caused the BNPL provider’s stock to jump 11.6% to an intraday high of $33.98.
While it continues to wait for approval of its U.K. banking license application, fintech giant Revolut is making plans in anticipation of a much bigger, bolder banking future in London. The company announced that it will move its London headquarters to the center of Canary Wharf, the city’s financial district, taking a 10-year lease for the YY London building and increasing its corporate footprint by 40% (113,000 square feet across four floors). With planning approval, Revolut’s logo will be prominently featured on two sides of the new building, firmly telegraphing its presence and intended banking business expansion in the City.
FINvestments
🦈 Number of the Week: Terraform Labs, the crypto company responsible for $40 billion in investor losses after its collapse in 2022, agreed to pay $4.47 billion in fines and penalties in a proposed settlement with the Securities and Exchange Commission—less than the $5.3 billion the agency originally sought. As part of the deal, the company is required to seek approval for its Chapter 11 bankruptcy liquidation plan and to close its business “as soon as possible.” Terraform founder Do Kwon must pay an additional $204 million and will also be blocked from becoming an officer or director of any public company. Kwon, who was arrested in Montenegro in 2023 and convicted of using a fake passport, is now caught up in an extradition battle between the United States, which wants him to face a criminal charge over the sale of the firm’s UST stablecoin, and South Korea, where he is a citizen.
🦈 AlphaSense, a market intelligence platform for asset managers, has raised $650 million in funding—bringing its valuation to $4 billion—and also agreed to buy rival Tegus, an investment research and data platform, in a deal valued at $930 million. The funding round was co-led by Viking Global Investors and merchant bank BDT & MSD Partners, with participation from new investors J.P. Morgan Growth Equity Partners, SoftBank Vision Fund 2, Blue Owl, Alkeon Capital Management, and existing investors CapitalG (formerly Google Capital and now Alphabet’s independent growth fund) and Goldman Sachs Alternatives.
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