We said to our free readers in late January following the SEC’s approval of nearly one dozen spot Bitcoin ETFs that it was “widely expected that this approval and subsequent widespread access for institutions and retail investors will shape up to be one of the most bullish fundamental moments in Bitcoin’s history.” At the time, Bitcoin was trading for less than $40,000. Now, Bitcoin has repeatedly pushed above the $70,000 mark, and we updated our Bitcoin game plan and price targets to $106K to $190K in late April as Bitcoin pulled back below $60,000.

While Bitcoin and the spot BTC ETFs have clearly seen strong investor appetite since the approval in the beginning of the year – for example, BlackRock’s iShares Bitcoin Trust (IBIT) reached $10 billion in AUM in less than seven weeks as it went on to notch 71 consecutive days of net inflows. IBIT now has more than $23 billion in AUM, or 305,067 BTC, more than doubling in three months. Alongside strong initial adoption of the new ETF class, we’re also seeing major crypto exchanges and platforms benefit, with Coinbase and Robinhood both seeing crypto trading volumes and transaction revenues surge.

This may cause investors to believe that Coinbase and Robinhood are clear beneficiaries, yet we foresee trouble for HOOD specifically. Our firm excels at using technical analysis to manage high beta positions, which is why our Bitcoin entries and exits have greatly outperformed a buy-and-hold strategy, as we previously detailed here. Not only are the technicals flashing on Robinhood but the fundamentals show concentration risk in Dogecoin, one of the riskiest coins on the market. We spell out what it could mean for our readers, and why Robinhood is (yet again) a risk to both investors and crypto holders.

Coinbase Says Crypto Volatility Ticked Up in Q1

After reaching the lowest levels since 2016 in Q3 last year, crypto volatility has begun to increase, with Coinbase noting that an internal measurement of crypto asset volatility rose “sharply, but remained well below all-time high levels.”

Coinbase measures volatility “based on intraday returns of a volume-weighted basket of all assets listed on our trading platform [which] are used to compute the basket’s intraday volatility which is then scaled to a daily window. These daily volatility values are then averaged over the applicable time period as needed.”

Source: Coinbase

Alongside this rise in crypto volatility towards the 5% range, Coinbase noted a surge in the crypto market cap, which “reached a 52-week high of approximately $2.8 trillion in Q1.” This also returned to the peak levels seen in Q3 and Q4 2021, which coincided with both Coinbase’s and Robinhood’s record high transaction revenues and trading volumes. Coinbase said that while it cannot identify a specific singular driver of this increase in crypto market cap through Q1, it pointed to “a variety of factors, such as the launch of the Bitcoin ETFs which experienced over $11 billion in net inflows so far in 2024.”

While we saw the pace of inflows slow to a crawl through April and May, June so far has seen inflows top the $500 million mark once again, recording the second highest daily net inflow since the start of the year at more than $886 million.

Source: The Block

Crypto market cap has stayed relatively flat this quarter so far compared to Q1, last reaching $2.68 trillion on June 11, just 7% below its peak of $2.89 trillion in early March. This was aided by the SEC’s initial approval of 8 Ethereum ETFs in late May and a 20% rise in ETH – another possible volatility-spurring event. Overall, Q1 saw very favorable conditions for Coinbase and Robinhood to accelerate trading volume growth and transaction revenue generation with an increase in volatility along with rising crypto prices, and these conditions look to have persisted through much of Q2 so far, albeit with a slowdown in net inflows to BTC ETFs early in the quarter.

Coinbase, Robinhood Trading Volumes Accelerating Significantly

Both Coinbase and Robinhood reported significant accelerations in trading volumes in Q1, with participation from both retail and institutional investors increasing.

Coinbase reported total trading volume of $312 billion, a 103% QoQ increase from $154 billion in Q4, and a 312% increase from Q3’s low of $76 billion. Growth was driven by both retail and institutional customers, though as Coinbase’s largest and primary customer group, institutions drove a lion’s share (83%) of the dollar increase in trading volume.

Source: I/O Fund

Institutional trading volume of $256 billion represented a 105% QoQ increase, or $131 billion, reaching the highest level since Q1 2022. Retail trading volume rose 93% QoQ to $56 billion in Q1, more than 5x higher than Q3’s $11 billion. Bitcoin was the primary driver of the QoQ increase in trading volume, with Bitcoin’s volume rising from below $48 billion in Q4 to $103 billion in Q1.

Robinhood’s crypto trading volume growth outpaced Coinbase’s in Q1, though at a much smaller base due to the lack of institutional investors on the platform. Robinhood reported 224% YoY and 181% QoQ growth in crypto trading volume to $36 billion, or 429% higher than Q3’s $6.8 billion. This growth was driven primarily by a surge in volume in March, where Robinhood reported $23.6 billion in volume, a 263% MoM increase.   

Source: I/O Fund

Robinhood also has shared April and May’s crypto trading volume metrics, reporting trading volume of $10.1 billion in April, a (57%) MoM decline but a 173% YoY increase. May’s crypto trading volume slipped (30%) MoM to $7.1 billion; this still represented a strong 238% YoY increase. We’re seeing one primary asset driving this growth in Q1 and this sequential MoM weakness through Q2, which raises one red flag for the durability of transaction revenue growth moving forward.

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Coinbase, Robinhood’s Transaction Revenues Surging

As a result of the rapid acceleration in crypto trading volumes across Coinbase and Robinhood, the two are seeing transaction revenues surge. In Robinhood’s case, crypto is now becoming a much larger part of transaction revenues and thus overall revenues.

Coinbase reported transaction revenue of $1.08 billion in Q1, including $56 million of Base and payment related revenue. This represented YoY growth of 187% and QoQ growth of 103%, an acceleration from Q4’s 64% YoY and 83% QoQ growth. In just two quarters, Coinbase’s transaction revenue has risen nearly 275% due to accelerating growth in retail trading volume.

Source: I/O Fund

Retail (consumer) transaction revenue increased 184% YoY and 99% QoQ; in dollar terms, revenue increased nearly $470 million from last quarter on a $27 billion increase in volume. Institutional transaction revenue approached levels last seen in Q4 2021, reaching $85.4 million in Q1. Revenue from this cohort has increased $71 million over the last two quarters, as trading volume surged nearly $200 billion.

Coinbase shared some light on Q2’s outlook, saying that “in April, we generated over $300 million of total transaction revenue and expect Q2 subscription and services revenue to be within a range of $525-$600 million, assuming crypto asset prices stay in the range we have seen year to date.” Extrapolating this across May and June suggests Q2’s total transaction revenues are set to decline sequentially, by approximately (10%) to (15%).

This highlights two major facets of Coinbase’s model – while institutions drive a majority of volume on the platform, the transaction fees are a tiny fraction of what retail pays, meaning that strong growth in institutional volume will barely be felt on the top line. It also highlights that despite increasing fee-based competition from both Robinhood and ETFs, Coinbase is driving revenues higher on smaller volumes than it had seen in 2021. This means that if crypto adoption and volatility brings trading volumes near peak 2021’s levels, revenue is likely to easily exceed those historical peaks. However, transaction revenue growth may have peaked for the short term, given April’s results and trends seen in Robinhood.

For Robinhood, crypto is but one of the many investing products offered on the platform alongside equities and options, with options historically serving as the largest driver of transaction revenue. Crypto transaction revenue was $126 million in Q1, an increase of 232% YoY and 193% QoQ. Compared to Q3 2023, it’s an increase of nearly 448%.

Source: I/O Fund

Robinhood Has Nearly as Much Doge as Bitcoin = High Risk

Crypto transaction revenue now accounts for 38% of Robinhood’s total transaction revenue, up from 22% last quarter and 12% in Q3. This was crypto’s highest share of transaction revenue since Q2 2021, where it drove 52% on elevated interest and extreme trading volume in Dogecoin, which accounted for 62% of crypto trading volume in the quarter.

Dogecoin remains a critical piece of Robinhood’s crypto business and a likely driver of recent growth alongside Bitcoin – safeguarded customer assets of Dogecoin increased 122% QoQ to $7.37 billion, or 28% of total safeguarded crypto assets. For comparison, safeguarded Bitcoin assets rose just 68% QoQ to $10.31 billion.

It's likely that a majority of March’s $23.6 billion in crypto trading volume can be traced back to Dogecoin, with the same going for April and May. March saw extreme volatility in Dogecoin’s price as it topped $0.20, with daily volumes regularly topping 3 billion, and reaching as high as over 12 billion, whereas in January and February daily volume rarely surpassed 2 billion. Daily volume remained elevated in April as Robinhood reported more than $10 billion in crypto trading volume, while Doge’s volume has dipped in May where Robinhood’s crypto volume declined (30%) MoM.

Source: CoinMarketCap

This raises a question of how durable transaction revenue growth is, assuming crypto trading volumes decline (30%) QoQ in Q2 on fading volume in Dogecoin, and plateau in Q3. Trading volumes are continuing to slip MoM, as seen in April and May’s results, providing a headwind to transaction revenue growth as this elevated volatility in Dogecoin dissipates.   

Robinhood received a Wells Notice in early May regarding crypto tokens listed on the platform, though it is not clear exactly which tokens the SEC is targeting in the notice. Robinhood CFO Jason Warnick explained in Q1’s earnings call that it is “business as usual for Robinhood Crypto. We're, of course, disappointed to have received the notice. As you know, we've operated our crypto business in good faith. We've been very conservative in our approach in terms of coins listed and services offered. And we're a highly regulated company and have applied the same legal and compliance standards we use for our brokerage to the way we run our crypto business. So, it's disappointing to see more regulation by enforcement here.” At the same time, Robinhood is working on expanding its crypto presence globally, buying BitStamp for $200 million.

Robinhood’s High Concentration Risk in Dogecoin

As a reminder, Dogecoin contributed 62% of Robinhood's revenue in the previous crypto run-up, which did not end well for investors as the high concentration contributed to the stock losing 90% of its value as Dogecoin’s hype and price faded shortly after Robinhood’s IPO.

We can clearly see how Doge’s price and volatility are correlated to Robinhood’s trading volume and transaction revenue growth.

Doge’s price surged to the pennies in Q1 2021 on more than 850 billion in volume, with Robinhood reporting nearly $88 billion in trading volume. Q2 2021 saw Doge’s price surge above $0.70 on extreme volatility with volume of 680 billion, driving Robinhood’s Q2 2021 trading volume up to $233 billion, a 3x QoQ increase. Transaction revenues soared from $12 million in Q4 2020 to $233 million in Q2 2021, a remarkable growth rate in just two quarters. However, this quickly faded to $51 million in Q3 2021 as Dogecoin’s volatility and volume faded quickly.

Trading volume declined steadily hand-in-hand with Doge through 2023 – October 2022’s pop in Doge drove a 16% MoM increase in Robinhood’s trading volume from $15.5 billion to $18 billion, which quickly dropped to below $15 billion in November and continued its trend of declining consistently. Doge’s recent increase again has correlated with increased volumes and transaction revenues for Robinhood in the first quarter, but has led to declining trading volumes and likely transaction revenue for Q2.

Source: CoinMarketCap

Source: I/O Fund

Analysts seemed to poke about Robinhood’s heavy concentration and reliance on Doge in Q1’s call, though management’s response was very vague.

Q, Brian Bertram Bedell (Deutsche Bank): “Maybe just staying on the crypto theme, maybe for Jason, if you can talk about just the nature of the surge in crypto volumes in March. And I think you said April was at $10 billion. I appreciate, of course, this is very volatile class, but maybe if you can just talk about what you're seeing that drove that heavy activity in March and whether you think we could see spikes like that again?”

A, Vladimir Tenev (CEO):  “…Our crypto activity does track the broader market. And I don't really want to get into prognosticating what the crypto market is going to do. That's obviously a difficult thing for anyone to do. It's a global market. … But the goal is also to diversify the business so that we're less reliant on volumes anywhere in any one category to drive business results.”

While management vaguely pointed to the broader market as a driver of growth, the comments about diversifying away from one asset again hints at Dogecoin being a primary driver of trading volume and transaction revenue growth, further supported by safeguarded assets more than doubling QoQ.

This heavy reliance on a memecoin raises risks for durable crypto revenue growth outside of Dogecoin, and we have seen cases where companies with heavy customer concentration have failed to deliver for investors. For example, AI lending platform Upstart, which has faced significant macro headwinds recently, had significant customer concentration, with two customers combining for more than 80% of revenue in both 2020 and 2021. Prior to the first rate hike in March 2022 and before feeling the effects of the challenging macro in Q2 2022, Upstart had lost more than two-thirds of its value.

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Forward Growth Rates Are Low

Despite strong growth in Q1, both Coinbase and Robinhood’s forward revenue growth rates are forecast to slow to a crawl, with sequential growth barely visible, if at all, with minimal single digit growth forecast for 2025 and 2026.

Source: I/O Fund

For Q2, Coinbase is estimated to see revenue decline almost (15%) QoQ, likely driven by softer transaction revenues. Sequential growth is limited through Q1 2025, with revenues estimated to hover around $1.4 billion. Robinhood is in a similar camp, with it estimated to see just $1 million in sequential growth in Q2 before a (6%) sequential decline in Q3.

On an annual view, revenue growth for the two is expected to slow dramatically in FY25 and FY26. Robinhood is estimated to report more than 28% revenue growth this year, but in 2025, growth is expected to decelerate 23 percentage points to just 5.3%. Coinbase’s revenue deceleration is much more severe, with estimated revenue growth of 81.1% in 2024 projected to decelerate to below 1% growth in 2025.

Source: I/O Fund

This rapid revenue deceleration to the single-digits is expected to persist, with Robinhood forecast to see just 3% revenue growth in 2026, while Coinbase’s revenue is expected to decline more than (2%) YoY, pointing to a revenue plateau in the $5.5 to $5.6 billion range.

Technical Analysis:

Coinbase (COIN)

COIN is in an uptrend that appears to be incomplete. It has been tied to Bitcoin’s uptrend, which is even more clearly incomplete. This means that COIN could be setting up for a buying opportunity on the next drop.

The larger pattern in play is a diagonal. This is a 5 wave pattern that is characterized by lots of overlap, big swings in both directions, and tends to obey a trend channel.  If this is playing out, then Coin base is setting up for a sharp drop into the $185 - $140 region. This drop will be the final swing lower, which will complete wave 4 of 5. We can see a drop as low as $113 and still maintain the diagonal pattern; however, below this level and the odds start favoring that a major top was already struck in March of this year.

If we are accurate, like Bitcoin, this dip would be another buying opportunity in an on-going uptrend. The final 5th wave would be generally targeting the $300 - $400 region, if confirmed. This is assuming we hold $113.

Source: I/O Fund

Robinhood (HOOD)

HOOD’s chart is not in a healthy position. Note the drop from all-time-highs. This is a direct drop that best resembles a 5 wave pattern. What has followed is an overlapping and messy bounce, which resembles a correction within a larger trend. If this is a developing downtrend, then the initial 5 wave drop is the A wave, the messy bounce is the B wave, which is setting up for a C wave drop, which I would expect to be about the same length as the A wave drop.

The final move higher is also quite telling. The last leg of a corrective bounce is always a 5 wave push against the larger trend. You can clearly see 5 waves in place, which takes us into the ideal topping zone for this move. In order for HOOD to start invalidating this setup, we really need to see a strong move above $48.10.

On the other hand, if HOOD is in the larger downtrend pattern, then the final leg lower will be a C wave. These are always 5 wave patterns, which appears to be vertical moves. If we see a vertical, 5 wave drop from any high, followed by a messy bounce in the opposite direction, we will have strong confirmation that HOOD is setting up for a larger drop.

This is not one we would play from the long side based on what the technical are telling us.

Source: I/O Fund

Conclusion:

Coinbase and Robinhood capitalized on increased crypto volatility in Q1 as crypto prices rose following the approval of spot BTC ETFs in January. Trading volume and transaction revenue growth was stellar for both in the first quarter, but Robinhood’s monthly metrics reflect weak MoM growth through Q2 so far, as Dogecoin volume and volatility subsides.

Robinhood is overdependent on Dogecoin as a primary driver of crypto trading volume and thus crypto transaction revenue, and with crypto accounting for 20% of overall revenue, it’s not something to ignore. Robinhood’s exposure to Dogecoin is unusual, and also a risk most investors probably aren’t aware of. When you couple these fundamental headwinds with the troubling chart, it seems there could be more trouble for HOOD on the horizon. This is not a stock we would play on the long side.

As Bitcoin continues to play out the ongoing bull cycle, we expect COIN to follow. The next high discussed in this writeup is where we will start getting cautious with both Bitcoin and COIN, as both charts suggest an incomplete uptrend. That being said, this drop in COIN appears to be a buying opportunity, as long as the critical support holds that we discussed.

I/O Fund Portfolio Manager Knox Ridley and I/O Fund Equity Analyst Damien Robbins contributed to this analysis.

Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.

Recommended Reading:

• We Are Raising Our Bitcoin Targets To $106K - $190K
• Coinbase, Robinhood: Examining The Impact Of Spot Bitcoin ETFs
• My Firm Called Bitcoin’s Bottom; Here is Where the Price Goes Next