What a distinction a altering regulatory atmosphere makes.
Roughly 9 months after suggesting {that a} younger copy buying and selling platform may solely function as a result of it flew “below the radar” of regulators, Robinhood has introduced its personal entry into the house with “Robinhood Social,” a brand new function that may enable customers to comply with and manually replicate the trades of outstanding buyers.
The transfer represents a putting about-face for the net brokerage, which has traditionally been cautious about options that might appeal to regulatory scrutiny. The corporate famously ditched its celebratory digital confetti function forward of its 2021 IPO after regulators raised issues about gamifying buying and selling, making its embrace of copy buying and selling, one other probably gamified function, all of the extra notable.
This wariness was on full show in December, when in a dialog with this editor about upstart copy buying and selling platform Dub, Robinhood CEO Vlad Tenev prompt that such platforms may function primarily due to their smaller dimension, proposing that “copy buying and selling may turn out to be of better curiosity to regulators” and that Dub could not but be below the “magnifying glass” due to its “comparatively smaller dimension.”
Now, Robinhood is betting that the regulatory panorama has modified sufficient to soundly enter the copy buying and selling market.
The timing is especially notable given the pointed criticism Robinhood confronted earlier this yr from Dub’s 23-year-old founder Steven Wang, who has positioned his platform as a extra educationally-focused different to conventional buying and selling apps.
“I’ve a whole lot of respect for what [CEO] Vlad [Tenev] has executed in making buying and selling free,” Wang instructed me again in February. “However on the finish of the day, making it tremendous straightforward to commerce with out professional steering, with out training, is de facto simply playing for the broader inhabitants.”
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Wang has constantly argued that Dub’s strategy – which incorporates danger scores, risk-adjusted returns, and portfolio stability metrics – represents a safer different to platforms like Robinhood. In his dialog with TechCrunch, Wang was additionally important of Robinhood’s choice to supply meme cash like TRUMP, saying the incentives are “misaligned between these massive platforms which might be public firms now that must make cash.”
Tuesday’s information, introduced at Robinhood’s firm occasion earlier within the day, delivered to thoughts the chance that Robinhood had, in actual fact, acquired four-year-old Dub, which formally launched simply final yr and has thus far raised $47 million in funding from buyers. However reached for remark, a Robinhood spokesperson responded through e-mail, “No, this isn’t an acquisition, we’re constructing our personal platform in Robinhood.” A request for remark from Wang was not returned by press time.
Robinhood’s model of copy buying and selling differs meaningfully from platforms like Dub and established gamers like eToro, which has supplied copy buying and selling to U.S. customers for years by way of its CopyTrader function. Whereas eToro permits automated copying of different merchants’ portfolios in real-time (with U.S. customers restricted to copying solely different U.S. merchants resulting from rules), Dub permits customers to routinely copy complete portfolios for a $10 month-to-month subscription, and Robinhood Social would require customers to manually replicate trades, a distinction which will assist deal with regulatory issues.
The platform, set to launch early subsequent yr, will function verified merchants and show the actions of well-known buyers and members of Congress. In contrast to the casual copy buying and selling that occurs on social media, Robinhood would require identification verification and proof of precise portfolio positions. The plan, based on the corporate, is to first invite 10,000 Robinhood Social customers to check out the service earlier than rolling it out extra broadly.
The launch comes at a time when the regulatory panorama is quick evolving. Crypto firms had been scrutinized closely below the Biden administration, whereas quite a few crypto firms have turn out to be publicly traded firms in current months, their path eased by the Trump administration’s crypto-friendly stance. In the meantime, copy buying and selling – lengthy frequent in Europe however closely restricted within the U.S. – could also be gaining acceptance lastly.
Seen by way of that lense, Robinhood’s entry into copy buying and selling represents extra than simply one other function launch; it may sign the opening of floodgates for a wave of latest platforms. If Robinhood can efficiently negotiate the authorized panorama that has lengthy restricted copy buying and selling within the U.S., different fintech outfits appear more likely to comply with swimsuit. eToro’s profitable Might IPO, which raised $310 million and noticed shares surge 29% on their debut, has already demonstrated sturdy investor urge for food for copy buying and selling platforms.
Whether or not this potential wave is sweet information or dangerous for retail buyers – or it can largely serve to spice up fintech valuations – is an open query. For proper now, Robinhood’s shareholders are most likely the clearest winners.
