Coinbase Vs. Robinhood: What’s The Best Crypto Exchange?

Key Takeaways:

The advent of online trading platforms and exchanges has done its part in democratizing finances for an entirely new generation of investors. Thanks to online brokerages, more and more investors can put their money to work and pursue financial freedom. It is worth noting, however, that not all trading platforms and exchanges are created equal. While there is plenty of room for several companies to make an impression on today’s investors, two are setting themselves apart from the rest of the pack: Coinbase and Robinhood. Both Coinbase and Robinhood award investors the unique opportunity to put their capital to work, but which one is better? Which platform wins the Coinbase vs. robinhood debate? While individual investment goals and experience will ultimately determine the best platform, it may be helpful to differentiate the two.

What Is Coinbase?

Coinbase is an exchange platform that specializes in cryptocurrency. Otherwise known as Coinbase Global, Inc., Coinbase is attempting to democratize the “crypto economy” by creating a more fair, accessible, efficient, and transparent financial system.

Coinbase allows its users to safely buy, sell, transfer, and store a wide array of digital currencies as an exchange platform. Over the course of a decade, Coinbase has become one of the most trusted platforms for helping people all over the world convert digital currency into and out of their local economies. Perhaps even more importantly, it’s taught people all around the world how to invest in Bitcoin.

Thanks to Coinbase, users may:

  • Buy and sell any of the digital currencies supported by the platform.

  • Send and receive digital currencies between online wallets, friends, or merchants.

  • Take solace in the fact that impending transactions are both secured and backed up.

  • Enjoy a “one stop shop” that integrates everything they need: a wallet, an exchange, and merchant tools.

  • Get in on the ground floor of what may turn out to be a generational opportunity.

What Is Robinhood?

Robinhood is a financial services company that gives its customers the ability to put their money to work in several different ways. Most notably, however, Robinhood is an online trading platform that offers commission-free cryptocurrency, stock, ETF, and options trades. Not unlike today’s most popular brokerages, Robinhood uses a streamlined platform to allow traders to invest in stocks. In other words, users may buy and sell stocks through the Robinhood app.

Thanks to Robinhood, users may:

  • Trade stocks, options, exchange traded funds, (ETFs) and cryptocurrencies without incurring commission fees.

  • Take advantage of a user-friendly interface that caters to new investors.

  • Start investing immediately without any cumbersome account minimums.

  • Take advantage of recurring investment strategies and fractional shares.

  • Manage their capital with a high-yield savings account and complimentary debit card.

  • Pay a small fee to trade on margin.


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Robinhood vs Coinbase

Coinbase Vs. Robinhood: User Experience

Robinhood’s user experience is perhaps the single greatest reason for the company’s rise to prominence. It is the streamlined nature of the mobile app, after all, that helped the company generate $80 billion in assets across 18 million user accounts. If for nothing else, new investors have been happy to flock to Robinhood to take advantage of a platform that they can actually understand.

Robinhood’s web and mobile trading applications have become synonymous with today’s easiest-to-use trading platforms. In fact, Robinhood’s user experience sacrifices many “luxury” amenities to accommodate its biggest audience: new investors. In ridding the platform of convoluted trading options and complex jargon that would only confuse new investors, Robinhood has facilitated a user experience that anyone can navigate.

The streamlined user experience is immediately apparent when new users sign up. Whereas far too many of Robinhood’s competitors make signing up a tedious obstacle, new Robinhood users will find that joining the trading platform is simple and painless. Once the app is downloaded, new investors can start trading as soon as their personal, financial, and contact information is verified.

Once signed up, new users can expect the same streamlined treatment to be present in every aspect of the application. Whether it’s transferring money from one account to another or buying and selling stocks, every action that can be taken on the Robinhood app is oversimplified and designed to meet user’s most basic needs.

However, it needs to be noted that the ease of use associated with Robinhood is a double-edged sword. While the platform grants inexperienced investors access to Wall Street in a matter of minutes, the stock market can be a dangerous place for anyone who doesn’t know what they are doing. At the very least, users need to be aware of the risks that lie in waiting before taking advantage of Robinhood’s easy-to-use interface.

On the one hand, Robinhood’s streamlined user experience democratizes the stock market. On the other hand, the application is so simple to use that it may open up an entire generation of investors to a level of risk they have never seen before.

For the most part, Robinhood’s user experience sets an industry standard. The web and app trading platforms allow even the newest investors to participate on Wall Street. That said, the great user experience is usually brought to a screeching halt once the need for customer support arises. At the moment, customer support is relegated to emails. Any complaint or inquiry must undergo a painfully slow and unnecessarily complicated email correspondence process. While Robinhood is in the process of rolling out phone support for select customer needs, most people will be forced to endure an email process that often leads nowhere. While email may be the “norm” for most online industries, it’s abundantly clear Robinhood needs a more proactive response team for dealing with peoples’ financial livelihoods.

Last, but certainly not least, Robinhood has developed a reputation for poor reliability. Most notably, Robinhood halted trading on specific equities at times when trading volume was at its highest. The same issue has happened on several occasions and should definitely be accounted for when looking into Robinhood’s user experience.

Despite having already established itself as one of the best cryptocurrency exchanges in the United States and one of the largest on the planet, it would be an understatement to suggest Coinbase offers a great user experience. In reality, Coinbase has one of the best user experiences in today’s financial sector.

Quite honestly, Coinbase has no excuse not to be incredibly easy to use. Since the cryptocurrency platform generates a large portion of its revenue from transaction volume, it depends on its user experience being intuitive, efficient, clean, and easy to navigate. In reducing the potential for friction, Coinbase can increase their transaction volume, and inevitably their revenue.

Not unlike Robinhood, however, Coinbase boasts a user experience that borders on too simple. Through Coinbase, the buying and selling process is stripped down so that only the necessary components remain and transactions may proceed without conflict. That said, cryptocurrency remains highly speculative. An app that grants unfettered access to an entirely new financial industry could pose a significant risk to unseasoned investors.

Outside of the user experience Coinbase can actually control, the crypto exchange has had reliability issues in the past. In particular, Coinbase has struggled with outages when too many people are using the app. From time to time, Coinbase users have been unable to trade cryptocurrencies when trading volumes were particularly high. The influx of users causes the system to crash, essentially preventing Coinbase from doing what it does best: buying and selling more than 50 cryptocurrencies.

While Coinbase is renowned for its user experience, its technical outages can’t be ignored. As a relatively new company, some users may give it leeway, but timing is everything when it comes to buying and selling financial assets. What may seem like a small outage could result in significant financial consequences. Therefore, anyone intending to use Coinbase needs to account for the potential surge in volume that could crash the system at times when trading is at its capacity.

Coinbase Vs. Robinhood: Currencies

When it comes to the different currencies users are granted access to on each platform, Coinbase is the clear winner. As a brokerage, Robinhood specializes more in the trading of stocks, options, and ETFs. While Robinhood does offer its users access to some cryptocurrencies, the number of supported crypto assets on Robinhood’s platform pales in comparison to Coinbase.

At the time of this writing, Robinhood allows investors to trade seven different cryptocurrencies:

  1. Bitcoin (BTC)

  2. Bitcoin Cash (BCH)

  3. Bitcoin SV (BSV)

  4. Dogecoin (DOGE)

  5. Ethereum (ETH)

  6. Ethereum Classic (ETC)

  7. Litecoin (LTC)

Coinbase, on the other hand, supports thousands of different cryptocurrencies and allows its users to actually trade about 76 different assets. Coinbase users are awarded the opportunity to trade anything from Bitcoin, with its $566.1 billion market cap, to Mask Network, which has a much more modest $39.4 million market cap (and everything in between).

However, it needs to be noted that Robinhood traders are merely trading their crypto assets within the app (and nothing more). Unlike crypto exchanges, Robinhood doesn’t let users transfer their crypto assets out of their accounts. As a result, anyone who invests in crypto on Robinhood can’t move their assets (or their private key) into a separate wallet. Perhaps even more importantly, anyone who invests in cryptocurrency on Robinhood can’t use the assets they won to buy and sell.

As an exchange, however, Coinbase provides its users with an encrypted code that grants access to their recently purchased cryptocurrencies. The code may be used to transfer holdings from the app to a digital wallet, where the owner is free to buy and sell as much as they please (or just HODL).

Coinbase Vs. Robinhood: Security

The ever-present threat of cyber-attacks has forced every company on the planet to allocate a significant amount of resources to cybersecurity, and Coinbase and Robinhood are no exception. As two of the most popular financial applications, these platforms have made the protection of their users a top priority. In doing so, both Robinhood and Coinbase have implemented 2-Factor Authentication at login. As its name suggests, 2-Factor Authentication requires users to present an authentication mechanism with at least two pieces of evidence that prove who they are. 2-Factor Authentication provides more security than a simple password and mitigates the risk of a single password being compromised. While not a perfect failsafe, 2-Factor Authentication is a great compliment to each platform’s additional security features.

In addition to secure login features, users on both platforms can take solace in the fact that most of their assets are federally insured. Coinbase stores its users’ capital in FDIC-Insured banks and provides coverage up to $250,000. Robinhood members, on the other hand, are covered by the Securities Investor Protection Corporation (SIPC), which insures up to $500,000 in cash and securities in the event Robinhood becomes insolvent. It is important to note that the SIPC protection is not extended to crypto assets on Robinhood, which is why many favor Coinbase for their crypto investments.

As for the crypto assets themselves, most of each platform’s holdings are kept offline and encrypted. Otherwise known as cold storage, encrypted assets held offline are not connected to the internet, eliminating the threat of unauthorized access, cyber-attacks, and other vulnerabilities that can only occur when connected to a global network.

Coinbase relegates about 98% of its crypto assets to cold storage, significantly reducing the threat of a cyber-attack. The remaining 2% of Coinbase’s assets are kept in hot storage (those kept online to facilitate day trading) and completely insured. To be clear, Robinhood does say it insures some of its users’ cryptocurrencies, but the company fails to mention exactly how much protection is granted.

When all is said and done, both platforms offer a wide array of security features and insurance policies. However, it’s Robinhood’s lack of transparency that gives a slight edge to Coinbase.

Robinhood Vs. Coinbase: Fees

The Coinbase vs. Robinhood debate gains more traction when fees are introduced into the equation. If for nothing else, fees are one of the most obvious differences in buying and selling on each platform. Robinhood, for example, has developed a reputation for allowing traders to buy and sell without paying fees. In fact, Robinhood is widely credited with popularizing the commission-free trading model that most online brokerages have now adopted.

Technically, Robinhood doesn’t make any money on commissions, which begs the question: How can Robinhood allow investors to trade without charging a commission fee?

Instead of collecting a small percentage of each transaction from individual retail traders, Robinhood receives compensation from what is known as market makers. Otherwise known as payment for order flow (PFOF), Robinhood can offer its users free trades by directing their orders to market makers for trade execution. “Market makers are typically large firms that specialize in a set number of stocks and options, maintaining an inventory of shares or contracts and offering them both to buyers and sellers,” according to Investopedia.

Let’s say, for example, a trader on Robinhood puts in an order to purchase 100 shares of Microsoft Corporation (NASDAQ: MSFT). Instead of Robinhood simply giving the trader the shares they asked for, they will pass the order to a market maker. Upon receiving the order, the market maker will seek out the requested shares and buy them off the New York Stock Exchange for a publicly quoted price. Typically, the market maker will find the shares for less than the Robinhood trader’s asking price. In doing so, the market maker will sell the Robinhood trader the shares they requested (at the price they requested) and pocket the difference from how much they originally spent. The market maker will usually retain a percentage of the money they earned for finding the stock at a lower price and give it to Robinhood for bringing them a customer (almost like a finders fee).

While payment for order flow may not incur any fees on behalf of Robinhood traders, everything comes with a price. Consequently, in return for buying stocks, Robinhood traders may simultaneously be paying higher asking prices and distributing their trade information to market makers.

Coinbase, on the other hand, is more forward with the fees it charges. From the moment Coinbase’s users sign up on the platform, each crypto transaction will coincide with a corresponding set of fees. However, the fee structure itself is a bit more confusing and depends entirely on the amount being spent and how the transaction is being paid for. For example, buying $100 worth of Bitcoin with a debit card will incur a different fee from buying the same out of Bitcoin with a linked bank account. Coinbase also charges a spread of somewhere in the neighborhood of 0.5% for cryptocurrency transactions. All things considered, Coinbase is upfront with its fee structure, but it can get very confusing very fast.

Which Is Right For You?

Despite their similarities, both Robinhood and Coinbase serve two unique purposes. Robinhood, for example, plays a role that resembles a traditional brokerage. Whether using the online platform or the mobile app, Robinhood allows users to buy and sell stocks, cryptocurrencies, and ETFs. Thanks to its user-friendly interface, Robinhood is popular amongst new traders with limited experience on Wall Street. While it may not have the same amenities and comforts typically associated with more established brokerages, Robinhood has proven useful in building a portfolio of stocks and introducing a new generation to Wall Street.

Robinhood offers crypto, which begs the question: Is Robinhood good for crypto? While it allows users to trade a select few crypto assets, Robinhood’s crypto offerings are nothing compared to Coinbase. With nothing but cryptocurrencies on Coinbase, the exchange does not offer stocks or ETFs and is, therefore, free to focus solely on a much larger variety of crypto assets. Additionally, Coinbase provides users with an encrypted key that lets them transfer their assets to an encrypted wallet. Therein lies the true benefit behind Coinbase: Users may transfer their holdings to a wallet, which in turn allows them to use their assets in subsequent transactions.

All things considered, both apps serve their audiences well. Therefore, investors must first decide their investment strategy before deciding which platform is better for their particular situation. Those looking for a more traditional brokerage will want to focus on Robinhood, as it’s the only one that allows investors to buy and sell stocks. However, those who want to focus on cryptocurrencies should emphasize Coinbase. The crypto exchange is much more equipped to deal with the needs of crypto investors, and its optionality is much more extensive.

Nonetheless, there’s no need to choose one over the other. Investors may use Robinhood to invest in stocks and ETFs and Coinbase to buy and sell cryptocurrencies. Both are perfectly suited to meet the needs of new investors and can help introduce new ways to put money to work.

Summary

The Coinbase vs. Robinhood debate has remained at the forefront of new investors’ minds ever since the latest cryptocurrency rally. When Bitcoin, in particular, jumped more than 815% in one year (March 2020 to March 2021), investors everywhere began to look for the best way to secure their own crypto assets. In their search, investors primarily landed on two platforms: Robinhood and Coinbase. On the surface, both apps seem similar, but their offerings serve entirely different audiences. Coinbase is best reserved for those who want to emphasize cryptocurrencies, and Robinhood acts as a more traditional brokerage. That said, there’s no reason today’s investors can’t use both to put their money to work.


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