A new chapter: Robinhood and Coinbase rivalry intensifies following $200M Bitstamp deal

In June 2024, Robinhood (HOOD), a prominent US-based trading platform, made a significant move by acquiring Bitstamp, a well-established cryptocurrency exchange, for approximately $200 million.

This strategic acquisition aims to broaden Robinhood's international cryptocurrency offerings and position it as a stronger competitor against more established cryptocurrency service providers like Coinbase (COIN).

Why is Robinhood buying Bitstamp?

Bitstamp, one of the world's first cryptocurrency exchanges, holds more than 50 active licenses and registrations worldwide as of June 2024. The exchange is particularly strong in Europe, where it serves a wide range of clients with over 110 different cryptocurrencies.

In contrast, Robinhood's cryptocurrency business has been primarily focused on the US spot trading market, offering a relatively limited selection of 15 tokens. In 2023, less than 20% of Robinhood's total annual transaction-based revenue came from its cryptocurrency operations.

By acquiring Bitstamp, Robinhood aims to accelerate the growth of its cryptocurrency business through integration of Bitstamp's institutional services, including lending and staking.

The acquisition will allow Robinhood to enhance its cryptocurrency offerings beyond token trading. Bitstamp's robust institutional business will provide Robinhood with access to new revenue streams from institutional clients.

These services include trade execution, deep order books, over-the-counter (OTC) trading, and API connectivity, catering to brokerage firms, market aggregators, proprietary traders, family offices, hedge funds, and banks in Europe and Asia.

Robinhood in a press release that Robinhood crypto's global expansion will accelerate significantly with the acquisition of a global exchange.

Furthermore, Bitstamp's additional institutional offerings, such as institutional lending, staking, and the white label solution Bitstamp-as-a-service, will provide Robinhood with an established network, leading products, and active relationships as it enters new markets.

The acquisition of Bitstamp positions Robinhood to become a fully-fledged cryptocurrency service provider akin to Coinbase. This is crucial as both companies vie for the attention of US retail investors looking to capitalize on the burgeoning cryptocurrency market.

Robinhood's acquisition strategy also involves leveraging Bitstamp's strong presence in Europe. Despite Bitstamp not being among the top 10 spot centralized exchanges (CEX) globally by trade volume in Q1 2024, it ranks higher in Europe, surpassing Coinbase with a 7.6% market share compared to Coinbase's 6.2%.

This regional strength is timely, given the European Union's adoption of the Markets in Crypto Asset Regulation (MiCA) framework in 2023, which aims to create a clear and regulated environment for cryptocurrencies. This regulatory clarity is expected to boost investment and trading activities in Europe, positioning the region favorably for a new bull market in cryptocurrencies.

International expansion

In the US, the cryptocurrency market faces ongoing regulatory uncertainty and government scrutiny, impacting several major firms, including Coinbase, Binance, Uniswap, and Kraken. In contrast, the European market, with its clear regulatory framework, is expected to see increased activity and investment confidence.

Additionally, the institutionalization of cryptocurrency has become a dominant theme in 2024. The US government's approval of spot Bitcoin (BTC) and spot Ether (ETH) ETFs has made it easier for institutional investors, such as investment banks, hedge funds, pension funds, and family offices, to invest in cryptocurrencies in a compliant manner.

Coinbase has already capitalized on this trend, with its Q1 2024 earnings report showing a doubling of institutional client trading volume to $256 billion and a significant increase in transaction and custodial fee revenues.

Robinhood aims to capture a share of this growing institutional market through its acquisition of Bitstamp, which has a well-established institutional business. Bitstamp's focus on compliance and its strong reputation make it an attractive partner for nervous institutional clients.

In Asia, particularly Singapore, Bitstamp's institutional business is poised for growth. The exchange received in-principle approval to apply for a major payment institution license in March 2024, positioning it to serve institutional clients, including payment processors, fintech companies, and brokerages, in the Asia-Pacific region.

Ultimately, the acquisition of Bitstamp by Robinhood is a strategic move to expand its global footprint and enhance its cryptocurrency offerings.

While Coinbase is often seen as more than just an exchange due to its innovative products like Base, an Ethereum L2 chain, and smart wallets, Robinhood's focus on an intuitive user interface can help drive global adoption of cryptocurrencies.

Both companies are poised to play essential roles in the future of the cryptocurrency market, catering to both retail and institutional investors.