Why you should avoid buying bitcoin or other cryptocurrencies from Robinhood.
Many people love to invest on the Robinhood app. After all who doesn’t like free stock trading? But buying your cryptocurrency from Robinhood might not be a smart idea. In this article we cover some of the negative aspects of purchasing Cryptocurrency from Robinhood.
First of all, when you sign up for Robinhood, you must enter your bank account info and social security information. This is standard KYC (Know Your Customer) procedure. But it will also mean Robinhood will report all your trading activity and holdings every year. This affects your privacy in negative ways. A smarter idea would be to purchase the cryptocurrency with cash from either another person, a seller that does not require identity verification or a bitcoin ATM. I have found that if I go to google maps and search “Bitcoin ATM” many results come up near me. If you are lucky, you will too.
The second reason to avoid purchasing crypto on Robinhood, and this is a huge reason, is that you cannot withdraw your cryptocurrency. That’s right, all your Bitcoin, Litecoin, Ethereum, or whatever else you are holding is stuck there. This is a huge disadvantage because you cannot move your cryptocurrency to a hardware wallet. I would consider hardware wallets and paper wallets one of the best ways to store your cryptocurrency. By not having this option available you are setting yourself up for failure. It also means you cannot use your cryptocurrency in DApps or cannot use your cryptocurrency to purchase other assets such as precious metals or real estate.
In fact, technically you are not holding your private keys at all. Robinhood does have a very good reputation and I like them a lot but what happens if Robinhood goes bankrupt or gets hacked? Robinhood does have “Crime Insurance” but according to their website, it only covers a portion of their assets. When you purchase cryptocurrency from Robinhood, you are giving up many of the liberties that cryptocurrency was created for.
This brings us to our third reason. Since you do not own your private keys you have no ability to take advantage of air drops or hard forks. When a coin is hard forked or airdropped if you own your private keys, you can configure your wallet in such a way that you gain coins from both blockchains. Let’s say you own Ethereum in Robinhood and you own Ethereum on a wallet where you own your private keys. The coins on Robinhood do not gain any tokens or currencies from a hard fork or air drop. But there are ways to take advantage of these if you own your private keys. One famous YouTuber likes to take advantage of these air drops and forks to get free cryptocurrency. He calls them “Crypto Dividends”! When you own your private keys you are able to secure this free cryptocurrency.
While I do love the free stock trading on Robinhood. Robinhood may not be the best place for you to buy your cryptocurrency. Some reasons for this are the KYC verification, you cannot withdraw them and you do not have the advantages of owning your private keys. With so many other great alternatives on the market I do not see the appeal for them to be the custodian of your cryptocurrency. In fact there is an old adage in the precious metals community that says, if you don’t hold it then you don’t own it. And I think that can be applied too your private keys.
Do you agree with these reasons? Let me know in the comment section below.