Analyst warns of Robinhood’s ‘high concentration risk’ in Dogecoin ($DOGE) crypto trading volume

Commission-free trading platform Robinhood is under scrutiny due to its heavy reliance on meme-inspired cryptocurrencies, with one analyst saying the platform has “high concentration risk in Dogecoin in terms of crypto trading volume and transaction revenue growth.”

The platform picked up the meme-inspired cryptocurrency during the cryptocurrency market boom in 2021 and quickly became a major trading platform for it. Its volume has since increased to the point that it shifted about 8% of DOGE's supply to a new wallet last year.

A recent analysis by Beth Kindig, a researcher at IO Fund, revealed the surprisingly high Dogecoin concentration on Robinhood. It shows that Dogecoin transactions account for a staggering 62% of Robinhood's total crypto transaction volume, meaning that a significant portion of Robinhood's crypto revenue comes from Dogecoin trading, considering that crypto transactions themselves account for 38% of the platform's total transaction revenue.

While Robinhood offers a wider range of cryptocurrencies, Dogecoin trading has become a cornerstone of its crypto business. The platform saw a significant increase in Dogecoin holdings compared to other assets, with customer balances increasing 122% quarter-over-quarter.

This dwarfs the 68 percent rise in protected Bitcoin, the world's leading cryptocurrency by market capitalization, the blog post said.

The post states that “a large portion of the $23.6 billion in crypto trading volume in March was likely due to Dogecoin, and the same is true for April and May.” This raises the question of “how sustainable the growth in transaction revenue is, assuming crypto trading volume declines 30% quarter-over-quarter in the second quarter due to declining volume in Dogecoin and then flatlines in the third quarter.”

Adding to the uncertainty is ongoing regulatory scrutiny of cryptocurrencies, with the U.S. Securities and Exchange Commission (SEC) previously issuing a Wells Notice to Robinhood, a precursor to potential legal action. The result of this regulatory pressure, particularly regarding which tokens the SEC considers to be securities and what trading bans exist, could further impact Robinhood's crypto offerings.

Robinhood's sizable Dogecoin holdings have long been a topic of interest in the crypto community, which was initially unaware that the exchange owned the largest wallet of the meme-inspired cryptocurrency.

Featured image via Unsplash.