Robinhood’s Dogecoin Holdings Signal High Concentration Risk, Market Analyst Warns

Robinhood’s claim to fame in the crypto industry has been its meme coin offering to US trades, more specifically allowing Dogecoin trading in the meme coin boom of 2021. Since then, the platform has grown to become one of the most prominent for trading meme coins, and its Dogecoin balances have grown to the point that it has become concerning for analysts due to how much of the altcoin the platform currently holds.

Robinhood’s Dogecoin Holdings Rival Bitcoin

Recently, Beth Kindig, a researcher and analyst at IO Fund, revealed that the concentration of Dogecoin holdings on Robinhood was incredibly high. In an X (formerly Twitter) post, Kindig revealed that this high concentration has also seen trading volumes on the exchange correlate with the decreased volatility and volumes for Dogecoin in general.

In a blog post on the IO Fund website, the market analyst further elaborated that Dogecoin actually made up 62% of the total crypto transaction volume on the trading platform. Interestingly, crypto transactions make up 38% of the total transaction revenue of Robinhood, meaning that Dogecoin makes up a good majority of the crypto transaction revenue.

At the same time, there has also been an increase in the DOGE transaction volume on the exchange, especially in comparison to other crypto assets on the platform. For example, Dogecoin saw a 122% increase in customer balances quarter-over-quarter. In the same time period, Bitcoin, the largest cryptocurrency by market cap, saw a 68% increase in safeguarded BTC assets.

What this shows is that Dogecoin trading has become an intricate part of the train platform’s business despite offering other assets for trading. While this has worked in times of peak interest, the market analyst doubts if this is a good thing in the long term for the company.

Is Such High Concentration A Good Thing?

In the blog post, IO Fund questions the viability of Robinhood’s business, given the high dependency on Dogecoin trading. Pointing out that crypto trading volumes have been sliding month over month, it questions the durability of Robinhood’s transaction revenue growth.

Furthermore, in addition to Dogecoin, there has also been some uncertainty surrounding the platform when it comes to come of its listed tokens. As the US Securities and Exchange Commission (SEC) has already sent a Wells Notice to the exchange, it remains to be seen which cryptocurrencies the regulator will deem to be securities and demand to stop trading.

However, if Dogecoin’s volume rises in the open market as correlation remains high, then Robinhood could continue to see high transaction revenue. “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,” the blog post read.

Featured image from CoinMarketCap, chart from Tradingview.com