Robinhood: The Next Best Crypto Stock?

While investors looking for backdoor ways to trade the latest crypto rally first turned to Coinbase (COIN), driving the stock up 65% over the past month, Robinhood (HOOD) is beginning to garner attention. 

Shares in the retail stock trading app surged more than 9% today after jumping more than 10% yesterday. 

The gains came after the company revealed in a filing from December 4 that “November Crypto Notional Trading Volumes were roughly 75% above October 2023 levels.”

The company also hosted a dinner with multiple Wall Street analysts on Tuesday leading to several of the analysts publishing research notes on the stock. 

The announcements and schmoozing seem to be working as firms such as Cathie Wood’s Ark Invest have been selling Coinbase and buying Robinhood shares.

Coinbase vs Robinhood: A Battle of Crypto Exchanges
While Robinhood is no novice to crypto, the company believes they are being overlooked in the market. Robinhood’s CEO Vlad Tenev even said as much on CNBC today…

While Vlad isn’t directly calling out Coinbase by name, it’s obvious that Robinhood is doing everything it can to bite into Coinbase market share.

The company is doing this by focusing on price transparency. While Coinbase continues to change the fees they charge customers to buy and sell crypto (the take rate), Robinhood is offering customers clear and unchanging take rates that are currently lower than other exchanges. The company does this by receiving volume rebates from market makers.

This goes to a point we have covered multiple times: Coinbase can only increase their take rate so far before customers look for other options.

Robinhood is also looking to court investor’s trading in the company’s stock by explaining how much more diversified their revenues are than Coinbase through their ability to offer 24 hour equities trading as well as crypto.

Our Take: It’s great to see Robinhood support crypto investing for their customers. What is unclear though is how much, if any, market share the company is taking from other US-based crypto exchanges. Potentially all of the recent growth is leaking from Binance, as the world’s largest exchange is dealing with legal issues.

Regardless, Robinhood is making an enticing offer to investors.

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Bitcoin’s Mining Difficulty Showing No Signs Of Slowing Down

Bitcoin miners are squeezing every last drop of their equipment before the upcoming halving, expected to happen in April 2024.

What's happening: The hashrate on the Bitcoin network has witnessed a remarkable surge since early September. This has led to the Bitcoin network experiencing its sixth consecutive difficulty increase – a measure of how easily miners can discover a block of bitcoin.

In layman's terms, this all equates to a much more competitive bitcoin mining industry in recent months.

Last week, the difficulty rose by 5.07%, reaching a record high of 67.96 trillion.

What’s accelerating the rapid rise here? And why is Bitcoin mining suddenly getting increasingly competitive? Let’s take a quick look.

Why it matters: During the bear market, miners were forced to shift their focus to cost minimization. Now, with the underlying economics slightly shifting, we should expect to see a massive run-up in difficulty until the halving.

Overall, the increased mining activity reflects a stronger conviction and heightened competition among miners, aligning with Satoshi’s vision. This scenario showcases the dynamics of fair market practices in the evolving landscape of mining technology, energy, and scarcity.

It may not be inherently bullish, but it is undeniably a beautiful manifestation of the principles guiding the Bitcoin network. 😁 

What’s next: The next Bitcoin mining difficulty adjustment will come out in roughly 3 days, so be on the lookout.

How to play it? Over the last few years, investors have gravitated toward bitcoin mining pubco’s as a backdoor way to play the market. Marathon Digital (MARA), Hut 8 Mining (HUT), Riot Blockchain (RIOT), and HIVE Blockchain (HIVE) are what you can call the “majors” these days.

If you’re eager to take advantage of today’s market conditions with these companies, consider their YTD gains first.

Can they go higher from here until the halving while BTC prices simultaneously catapult? Of course. But the chances of these stocks replicating such gains over these next 12 months are pretty slim.

One must remember that bitcoin mining is a race to the finish, literally (or until that last bitcoin block is mined, when miner rewards will be next to nothing, and when we’ll all be dead in the year 2140).

Similar to companies mining precious metals, Bitcoin mining is a highly capital-intensive business. When conditions are right, you can make some money. But when conditions are bad, it’s one of the worst business models in the world. Rigs are always advancing, rewards shrink, energy costs rise, and as we discussed above, competition is ever-increasing.

All of this says that we investors should expect a massive wave of consolidation. In fact, it’s already underway. But there’s still a lot more to come.

As investors, it is difficult to pinpoint the next takeover target. While several miners trade under a dollar and look like cheap acquisition targets for the majors, they’re also on the verge of bankruptcy, hanging on by a thread, and in loads of debt from their quest to stay competitive.

Another strategy is to long miners with limited debt and enough cash in the bank to survive the bad times, acquire competitors, and invest in growth. Healthy balance sheets will be critically important going forward. Some miners are even tapping into high-performance computing and AI as a revenue diversification strategy.

However you play it, one thing is for certain: Only a few of these miners will still be relevant in the years to come. Only the financially sound miners will survive.

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