Robinhood restricts Instant Buying of crypto, citing ‘extraordinary market conditions’
One day after trading app Robinhood halted buying of red-hot stocks like GameStop and AMC, infuriating customers, the app turned off a key cryptocurrency buying feature on Friday.
The paid feature, Instant Buying, allows customers to transfer funds from a bank account and use the funds immediately, before they have been settled.
“Due to extraordinary market conditions, we’ve temporarily turned off Instant Buying power for crypto,” Robinhood said in a statement to Yahoo Finance. “Customers can still use settled funds to buy crypto. We’ll keep monitoring market conditions and communicating with our customers.”
Robinhood did not say, in its statement or in its blog post about the restriction, what the extraordinary conditions were, nor did it cite specific cryptocurrencies.
But bitcoin (BTC-USD) was up 15% on Friday, a bounce accelerated by Elon Musk on Twitter; and meme-based token dogecoin (DOGE-USD) was up 165%, fueled by social media.
It wasn’t just Robinhood. Amid the market mania this week, TD Ameritrade and Schwab placed restrictions on margin trading in the surging stocks, limiting how much customers could borrow for trades; Webull, an app that Robinhood users fled to after Robinhood’s restriction, also restricted buying of the same stocks. The actions are seen as bullish for cryptocurrency and DeFi (decentralized finance applications), because they could bring new entrants to a space without traditional financial middlemen.
Vlad Tenev, co-founder and co-CEO of investing app Robinhood, speaks during the TechCrunch Disrupt event in Brooklyn borough of New York, U.S., May 10, 2016. REUTERS/Brendan McDermid
After Robinhood’s actions this week, the tech unicorn, which has a $12 billion valuation and aims to go public this year, finds itself in hot water with everyone from lawmakers to customers.
New York Rep. Alexandria Ocasio-Cortez, Texas Sen. Ted Cruz, and California Rep. Ro Khanna are just some of the politicians to issue statements of outrage with Robinhood’s action on Thursday, which was seen as doing harm to retail investors. Robinhood has already been hit with a class action lawsuit from customers over these events. And the company is in the process of raising an emergency $1 billion in new funding to cover its cash shortfall.
Story continues
In a blog post on Thursday, Robinhood said its halting of buying for surging stocks was “a risk-management decision” and that, “We have SEC net capital requirements and clearing house deposits… Some of these requirements fluctuate quite a bit based on volatility in the market and they can be substantial in the current environment where there’s a lot of volatility and a lot of concentrated activity in these names that have been going viral on social media.”
And in a series of tweets on Thursday afternoon, CEO Vlad Tenev said the app’s decisions on Thursday were “not made on the direction of any market maker we route to or other market participants.”
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Daniel Roberts is an editor-at-large at Yahoo Finance and has covered bitcoin since 2011. Follow him on Twitter at @readDanwrite.
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Robinhood reportedly restricts crypto trading temporarily ‘due to extraordinary market conditions’ as Bitcoin and Dogecoin spike sharply
Robinhood limited cryptocurrency trading due to “extraordinary market conditions” on Friday, CNBC said.
A spokesperson told CNBC customers can still use available deposits in their accounts to buy crypto.
The brokerage’s restriction came as the prices of Bitcoin and Dogecoin spiked sharply on Friday.
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Robinhood limited cryptocurrency trading on its platform Friday following the soaring prices of Bitcoin and Dogecoin, CNBC reported.
“Due to extraordinary market conditions, we’ve temporarily turned off instant buying power for crypto,” a Robinhood spokesperson told CNBC. “Customers can still use settled funds to buy crypto. We’ll keep monitoring market conditions and communicating with our customers.”
Earlier in the day, traders on Robinhood were unable to make new deposits for cryptocurrency purchases. They could buy cryptocurrencies only with the existing deposits in their accounts, which can take five business days to clear, CNBC said.
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The price of Bitcoin surged 15% on Friday to $38,089.94, after Elon Musk changed his Twitter bio to “#bitcoin.” Musk’s tweets have prompted recent frenzies into the shares of video-game retailer GameStop and digital token Dogecoin. The meme-based cryptocurrency that started as a joke soared 336%, to $0.054 on Friday, pushing it into the top 10 cryptocurrencies by market cap, according to data from Coin Gecko.
Robinhood did not immediately respond to Insider’s request for comment.
The platform had also restricted trading of highly volatile stocks like GameStop, AMC, BlackBerry, and others on Thursday before the market open, saying it continuously monitors the markets and makes changes where necessary. It later loosened restrictions and reopened limited buying.
But day traders and some lawmakers sharply criticized the brokerage for leaving its users unable to buy some Reddit-touted stocks. On livestream video service Twitch, Rep. Alexandria Ocasio-Cortez called Robinhood’s decision unacceptable and said more information was needed.
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Robinhood restricts access to digital currency
Robinhood has restricted user access to the digital currencies on its platform. Now, Robinhood users can only buy digital currency if the funds on their account have settled; what they can not do is use “instant deposit” money to purchase digital currency.
“Due to extraordinary market conditions, we’ve temporarily turned off Instant buying power for crypto,” said a Robinhood spokesperson.
The extraordinary market conditions that they may be referring to might be the influx of individuals who have decided to invest in digital currency. Yesterday, Dogecoin became widely discussed by a large number of internet communities that have conspired to induce short squeezes on stocks and pump up the price of penny stocks, or really any asset with a value below $1.
As a result, Dogecoin pumped by over 800%, and Robinhood’s platform experienced bottleneck issues due to the swath of users looking to trade stocks that fall under their short-squeeze and penny stock thesis. This style of investing has recently been referred to as “investing in meme stocks.”
Robinhood is under fire
Over the past few days, retail investors have been disappointed with Robinhood. When the short-squeeze and penny stock investment theses began circulating, Robinhood halted or terminated trading for the stocks and digital currencies that became popular due to the thesis.
The retail investors were disappointed that industry giants like Robinhood got to pick and choose where the people were allowed to place their money. Which led many blockchain-enthusiasts to believe that the adoption of decentralized financial products would be catalyzed by this event.
On a decentralized exchange, there is no central entity that can step in and decide which assets can and can’t trade. Instead, it is up to the platform users to provide both the shares and liquidity in the market. In a blockchain-based financial market, trades happen directly from peer-to-peer, and there is no intermediary involved. By cutting out the middleman, consumers can remove oppressive parties like Robinhood that have been dictating how they can and can’t trade.
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.