Are you wondering whether Robinhood is bad for storing and buying crypto? Robinhood got a bad rap at some point for offering a small selection of coins and not allowing you to move your crypto off its exchange other than cashing out. However, things have changed and since March 2023 Robinhood is the only broker to offer a non-custodial crypto wallet to its users. Right now, if you intend to use a broker instead of a crypto exchange Robinhood is your best choice. In this article, I will explore the pros and cons of using Robinhood to buy and store crypto.
Bottom line: Robinhood is the only broker to offer a non-custodial wallet. This is even better than crypto exchanges. By offering both crypto and non-crypto assets the Robinhood app lets you manage your total investment portfolio in one place. The biggest drawback is that Robinhood does not have as wide a range of cryptocurrencies as other wallets and exchanges do.
Infographic: What’s good and bad about Robinhood
Robinhood at a glance
Robinhood is an online brokerage and trading platform that rose to popularity for not charging any trading commissions to its customers.
Instead, it takes a cut from market makers in return for providing them with order flow i.e. liquidity which market makers need to do their job. The platform is popular with retail investors, particularly younger Gen Z users.
Robinhood users can invest and trade in financial products such as stocks, mutual funds, exchange-traded funds (ETFs), options trading, and futures trading. It was one of the first platforms to offer users the option to invest in fractional shares and then in 2021, it introduced crypto trading.
You can now trade the following digital assets:
Supported cryptocurrrencies on Robinhood
|Robinhood coins and tokens
|Bitcoin Cash (BCH)
|Ethereum Classic (ETC)
|Shiba Inu (SHIB)*
|Stellar Lumens (XLM)*
|USD Coin (USDC)**
*Not available in New York.
**USDC is not available in New York or Texas.
In March 2023 Robinhood launched a self-custodial wallet for iOS users and is soon expected to launch one for Android. You can join the waiting list for Android here.
The wallet supports the following networks: Ethereum, Bitcoin, Dogecoin, Polygon, Arbitrum, and Optimism networks.
This means that you can store assets that live on those blockchains. For example, you can store more than 50 types of ERC-20 tokens on Ethereum such as COMP, MATIC, SHIB, SOL, UNI, USD, and more.
This is a really positive move for Robinhood. To date, most websites have criticized Robinhood for not offering its users self-custody of their assets. With the launch of the iOS wallet, Robinhood is the first broker to offer its users a non-custodial wallet.
Custodial vs non-custodial wallets
Let’s do a quick primer on wallets and crypto ownership.
Private keys explained
Say you have 1 Bitcoin. Lucky you. That bitcoin is not a physical product. So where is it? If you check the blockchain you will see that your public address, which is a long string of alphanumeric characters, has 1 bitcoin allocated to it.
The reason you own that address is that you own the private key to it. Anyone with the private keys to a public address can move the crypto elsewhere.
How Robinhood manages private keys
Now if you invest in crypto on Robinhood without using the wallet then Robinhood keeps the private keys for you on your behalf. This way you just click on buttons on their mobile app to manage your funds.
However, when you do this you are implicitly trusting Robinhood to store your keys safely i.e. you have given them custody of your keys. If they were to get hacked then you would wave goodbye to your crypto.
More importantly, up until recently, you were not able to move your funds from Robinhood to another address. For example, you couldn’t send your crypto to another wallet or to a crypto exchange.
Robinhood’s wallet gives you self custody
With the introduction of Robinhood’s wallet, you can now have custody of your funds. When you set up a wallet you will be asked to store a seed phrase which is a series of 12-25 words.
These can be used to derive your private keys and anyone with access to your seed phrase will have access to your funds. Most importantly, Robinhood won’t have access to your seed phrase or private keys. Your keys are locally encrypted on your device only for you to use.
You can now move your funds on Robinhood to your Robinhood wallet and you will still see them on both apps but you will have ownership of those funds to do as you please with them.
Currently, no other broker offers this option
- Self-custody wallet for iOS users
- Commission-free trading
- Trading tools and charts
- Support for IRA accounts
- Educational resources
- Web-based version and app for iOS and Android
Let’s take a look at the pros and cons of using Robinhood to manage your crypto investments.
1. Manage everything from one place
Robinhood offers you the best of both worlds. A self-custody wallet to manage your crypto investments and a central platform where you can invest in both crypto and non-crypto products.
If you don’t want to manage multiple apps for your different investments then Robinhood offers ease of use and becomes a one-stop shop for investing in all types of financial markets.
2. Self custody
Robinhood is the only brokerage that offers self-custody of your crypto assets. None of the other brokerages such as eToro, TD Ameritrade, or WeBull offer this. When you buy crypto on an exchange the exchange holds custody of your account keys.
3. Ease of use
Robinhood became especially popular with Gen Z because it is extremely easy to use. The interface does scare away new investors and you can invest as little as a dollar to start with.
4. Customer service
When I checked reviews on forums such as Reddit, App Store, and Trust Pilot I found that most people spoke favorably about the customer support
If you do not use the wallet Robinhood stores your crypto in cold storage. This means that your private keys are stored offline and are not accessible to hackers. The app also allows you to set up two-factor authentication which you should do if you are new to this. Just download Google’s authenticator app to do this.
Robinhood is regulated by the U.S. Securities and Exchange Commission (SEC) and a member Financial Industry Regulatory Authority (FINRA). While the SEC has been suing crypto exchanges left right and center it hasn’t come after Robinhood which holds all the required licenses.
1. Low range of cryptocurrencies
Compared to a cryptocurrency exchange Robinhood has a much narrower selection of coins to invest in.
2. Not FDIC insured
Unlike with cash in a bank account, your crypto is not insured by the Federal Deposit Insurance Corporation (FDIC). This means that no one is coming to save you if Robinhood goes bust and you have not used the wallet to store your crypto assets. Having said that Robinhood Financial LLC has taken out SIPC insurance which covers non-crypto assets up to $500,000.
3. Only available in the United States
Unfortunately, you can’t use Robinhood outside the US.
4. Robinhood has been hacked in the past
The hackers stole 5 million email addresses and 2 million names but not any funds. You can read about the hack here.
5. Can’t trade on leverage
Robinhood does not allow you to trade cryptocurrencies using a margin account which you can do on some crypto exchanges. See what is leverage in crypto trading for more. See also how to short crypto on Robinhood.
6. Requires KYC
Like all brokers and exchanges, Robinhood needs to follow strict KYC (Know your customer) and AML (Anit money laundering) rules. This means that you will need to share your identity details such as phone number, email address, name, and physical address. You will also need to upload proof of identification and a utility bill for your address. You will also need to do this if you use their wallet. For most self-custodial wallets you don’t need to KYC which means you can remain anonymous.
7. Fee structure is not transparent
While they don’t charge you direct trading fees they still need to make money somehow. Robinhood has been criticized for its practice of selling order flow to market makers. Critics argue that this practice could lead to less favorable execution prices for users.
8. Not for storing your life’s savings on
If you hold a large amount of crypto you are better off using a hardware wallet. Check out my Ledger Wallet review for more.
9. Trading Restrictions
As with any popular platform, Robinhood has faced its fair share of controversies regarding its handling of cryptocurrency trades. One notable incident occurred in January 2021 when Robinhood temporarily restricted the buying of certain stocks and cryptocurrencies, including GameStop and Dogecoin, during periods of extreme market volatility.
The move drew criticism from users who accused the platform of favoring institutional investors and limiting the trading opportunities for retail investors.
Robinhood supports the following payment methods for cryptocurrency trading
- Credit card or debit card
- Instant deposits up to $1,000
- Standard bank deposits
Alternatives to Robinhood for Crypto Investing
Brokers that offer crypto
- TD Ameritrade
- Cash App
Choosing the right cryptocurrency exchange can be mind-bogglingly confusing. There are so many exchanges out there. First of all, there are multiple types from order book exchanges to decentralized ones. Secondly, how do you know which one to trust? Even the large ones seem to implode from time to time. Thirdly, most sites aren’t exactly impartial in their recommendations. You won’t be shocked if I tell you that these websites rank exchanges according to whichever rewards them the most. Not to fret though. In this post I will walk you through 20 objective criteria you can use to choose a crypto exchange and find the one that suits you best. Read more.