Robinhood Markets, Inc. is known for offering commission-free trading of stocks, ETFs, and cryptocurrencies which it does via an app that it introduced in 2015. The Robinhood app became especially popular during the meme stock mania last year. The company went public on July 30, 2021 at $35.15 a share. It peaked at $55.01 a share on August 6, 2021. And, on the first of February, 2022 it trades for $14.51. What happened to Robinhood stock?
Why Has Robinhood Lost Two-thirds of Its Market Cap?
Robinhood has lost so much of its market cap because its business is shrinking instead of growing. Stocks like Tesla and Amazon have stayed ahead of the curve because they keep generating revenue. Robinhood has fewer active users and cryptocurrency trading, especially, has fallen off. We asked back in July of 2020 if Robinhood trading is dangerous. The issue that we pointed out is that the Robinhood app makes trading extremely easy. You don’t need to sit down at a computer and you can make snap decisions while out and about. This, we thought back in 2020 and still think today, makes use of the Robinhood app too much like a trip to the casino or perhaps online gambling. While some people will continue to trade when they are constantly losing money most will come to the conclusion that it is time to quit. This applies to trading bitcoin or trading stocks without the skills and discipline to make the endeavor a success.
Making Lots of Trades Does Not Guarantee Success
Robinhood’s app makes trading easy. It also can tempt novice traders to place lots of trades. This results in higher trading “overhead” but not any guaranteed profits. People like Warren Buffett have become rich because they only invest in companies whose businesses they understand. They only invest when they can see how the company’s business plan and position in its niche will guarantee profits for years on end. These folks assess the intrinsic value of an investment before jumping in. The use of an app that makes trading easy and “commission free trading” are not conducive to this proven approach to investing.
Who Is the Mark?
In regard to Robinhood, many times you will see reference to a saying typically used regarding poker games. If you cannot see who the mark is at the table, it is probably you. Robinhood does not charge a commission for trades but routes them in such a way that they make money and you commonly get a worse trade setup than you would by going with another online broker. The fact is that you may be giving away more in a trade by using Robinhood than you would have paid in commissions to another online broker.
Are Folks Tired of Crypto or Simply Back to Work?
The Covid-19 pandemic has skewed the world as we knew it and, to a degree, is letting things come back to normal. Lots of folks spent a lot of time at home in the last couple of years. Much of the surge of online trading with apps like Robinhood can be attributed to people having time on their hands. Folks who did not make huge profits while trading things like bitcoin have gone back to work and would rather earn a paycheck than risk their savings in the cryptocurrency market when their experience tells them that it is risky. Even the most naïve trader or investor eventually realizes that the pump and dump nature of bitcoin has stacked the deck against them. All of these folks bailing out of crypto trading has hurt Robinhood and that hurt may get worse if the government decides to ramp up bitcoin regulation.
Is Robinhood Another Gamestop?
The surge in price of Gamestop last year was due to a short squeeze orchestrated in social media. Gamestop has gone the way of many brick and mortar stores and is a shadow of its former self. It could well be that Robinhood will follow Gamestop into the realm of businesses that are a shadow of their former selves. What happened to Robinhood stock was that the needs and desires of traders and investors moved on and Robinhood did not.
What Happened to Robinhood Stock? – Slideshare Version