Robinhood’s stock roller-coaster, explained
Good morning, and welcome to Protocol Fintech. This Tuesday: Robinhood under pressure, crypto contagion and Amount’s layoffs.
Off the chain
Fiat still has the edge in aiding Ukraine. The country has reportedly raised some $135 million in donations of bitcoin and other tokens. But conventional transfers have been far more important, Ukrainian official Mykhailo Fedorov revealed Monday. Humanitarian organizations using PayPal have raised $500 million, he reported in a tweet, since the money-transfer service began operating in the country in mid-March.— Owen Thomas (email | twitter)
Robinhood’s reeling from a wave of good, bad and confusing news. It scored an upgrade from Goldman Sachs, which said yesterday that the worst could be over for the company’s slumping stock. But a recent congressional report suggested the crisis it faced during last year’s GameStop frenzy was worse than reported. Then there was the report that FTX was thinking of buying the company — which was quickly denied by FTX CEO Sam Bankman-Fried, who personally acquired a stake in the online broker this spring.
Robinhood had a near-death experience. The GameStop fiasco may seem like ancient history, but a House Financial Services Committee report shed light on how Robinhood nearly imploded during the trading frenzy.
- The January 2021 GameStop frenzy turned the spotlight on Robinhood’s “troubling business practices, inadequate risk management, and a culture that prioritized growth above stability,” according to the report by the House committee.
- In fact, things got so bad that Robinhood “was only saved from defaulting on its daily collateral deposit requirement by a discretionary and unexplained waiver,” the report said.
- Robinhood downplayed the report. The findings were “nothing new” and confirmed the company’s view that “January 2021 was an extraordinary, once in a generation event that stressed every stakeholder in the market,” Lucas Moskowitz, Robinhood’s deputy general counsel, said in a statement.
What amounts to good news is that maybe things won’t get any worse. After downgrading Robinhood’s stock to sell in April, citing a “lack of clarity around the path to profitability,” Goldman Sachs upgraded it to neutral on Monday.
- HOOD has already shed 29% since the downgrade and shouldn’t fall any further for now. “We now see a more balanced risk-reward,” the Goldman Sachs analysts told clients in a note.
- Rising interest rates may actually help boost Robinhood’s net interest income, and customer engagement based on trading volumes will likely stabilize. The analysts said they think Robinhood “has worked through a large part of the elevated churn” it went through following the GameStop frenzy.
- The report sent Robinhood shares climbing 14%, though it’s still under $10. Robinhood isn’t out of the woods yet, the analysts said: “Fundamentals are still very weak.”
- The company is also cheaper now, its market value is down to $8 billion. That’s probably why Wall Street got excited by chatter that FTX was thinking of buying HOOD. Bankman-Fried shot down the report, saying there are “no active M&A conversations,” despite his being “impressed by the business that Vlad [Tenev] and his team have built.”
- If FTX does want to have a chat about buying Robinhood, Bankman-Fried is smart to butter Tenev up. Robinhood’s CEO and his co-founder Baiju Bhatt control 63.3% of the company’s voting power, thanks to its multiple-class share structure.
What Tenev has built is a wobbly edifice, Rob Siegel of the Stanford Graduate School of Business said, pointing out that Robinhood’s revenue streams are seriously under pressure. Its “bread and butter” comes from day trading and crypto, which are not exactly robust markets right now: “Their core business is in a lot of trouble.” Given that, the bar for good news is low.
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Efficient by design: We wanted to understand how Stellar compares to other blockchains and the legacy financial system. But as we tried to gather information on what was publicly available, there was little to be found. Rigorously-tested data and research from the blockchain and traditional finance industries as a whole is lacking and not easy to come by.
On the money
British officials are investigating Wise CEO Kristo Käärmann’s failure to pay his taxes on time. Käärmann already paid the taxes and penalties, but now the Financial Conduct Authority is looking into the matter, the company said.
Amount has laid off 18% of its staff. The company had roughly 400 employees before the cuts and raised $99 million last year, valuing it at more than $1 billion.
Celsius is resisting Chapter 11. The DeFi lender’s lawyers have recommended bankruptcy, but Celsius is asking its customers to activate something called “HODL Mode” on their accounts to show their support.
Hedge funds are shorting USDT. The tether stablecoin briefly lost its peg to the dollar in May. Some are betting against USDT over questions about the quality of its reserves, while others see the trade as a way to bet on the broader economy.
Crypto hedge fund Three Arrows Capital has defaulted on a loan of cryptocurrencies worth $666 million from Voyager Digital, the broker said Monday.
Voyager Digital said it has issued a notice of default to the hedge fund for failing to make payments on a loan of 15,250 bitcoin and $350 million USDC. Voyager ”intends to pursue recovery from [Three Arrows] and is in discussions with the company's advisors as to legal remedies available,” the company said in a statement.
"We are working diligently and expeditiously to strengthen our balance sheet and pursue options so we can continue to meet customer liquidity demands," Voyager CEO Stephen Ehrlich said in a statement.
Voyager stressed that it "continues to operate and fulfill customer orders and withdrawals," noting that it had roughly $137 million in cash and "owned crypto assets on hand."
— Benjamin Pimentel
FalconX, an institutional crypto exchange and market maker, reached an $8 billion valuation after a $150 million series D round. GIC and B Capital led the round. The company’s $210 million series C round in August 2021 valued it at $3.75 billion.
Las Vegas-based financial infrastructure company Prime Trust closed a $107 million series B funding round led by FIS, Fin Capital, Kraken Ventures and Mercato Partners. The company creates APIs and widgets for cryptocurrency exchanges, wallet providers, neobanks and other companies managing digital assets.
British neobank Starling Bank is acquiring a 500 million-pound mortgage book from Masthaven in a strategy shift to diversify lending. Most of the company’s assets have been government-sponsored pandemic recovery loans, but that program is scheduled to stop at the end of June.
Ledger Investing raised $75 million in a series B funding round led by WestCap. Teachers’ Venture Growth, Intact Ventures, Signalfire and MassMutual Ventures also participated in the round. The New York insurtech aims to link securities to insurance risk, and says it will use the funds to build out additional data infrastructure services.
Aidaly raised $8.5 million in a round led by Alexis Ohanian’s Seven Seven Six. Lightspeed Venture Partners, Operator Partners, Precursor Ventures and Polymath also invested. Aidaly provides financial and coaching services for family caregivers.
Outland raised $5 million in a seed round led by OKX Blockdream Ventures and with participation from JDAC Capital, IMO Ventures and Dragon Roark. The buzzy startup fosters “critical conversation” around emerging digital technologies for selling and displaying art, and hired Christopher Lew, former curator at the Whitney Museum of Art, in March.
Earned-wage access service Tapcheck raised $20 million in a series A round led by PeakSpan Capital. The Los Angeles startup helps employees tap earned but unpaid wages and offers various companion financial-wellness services.
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