Robinhood Repurposes Dollar-Cost-Averaging Theory for Crypto
Robinhood Financial began to roll out on Wednesday a new feature for its self-directed platform users that repurposes a time-worn investor strategy—dollar cost averaging—for volatile cryptocurrency investments.
Under dollar cost averaging (DCA), investors purchase a designated asset in small increments over time, rather than purchasing one big stake at one time. Theoretically, the investor takes advantage of market dips but doesn’t risk market timing misjudgments or putting down too much capital on one day’s bet.
With Robinhood’s new feature, users will be able “to regularly buy” their favorite cryptocurrency coins “commission-free and with as little as $1 on a daily, weekly, or monthly schedule of your choice,” the company says on its blog. The post includes a brightly colored animation of an automated machine dropping coins into three neat stacks at regular intervals.
The new feature will be available to customers this month, the company said in the blog post.
Robinhood’s announcement comes less than two weeks after the Securities and Exchange Commission Chairman Gary Gensler’s widely reported comments that his agency had “on the table” a ban of payment for order flow practices, which contribute significantly–more than 80% in the second quarter–to the company’s revenues. Gensler had cited an “inherent conflict of interest” in the practice of brokerages sending customer orders to market makers, receiving payment in return.
It also comes as the app looks to tread a thin line in offering retirement and more wealth management-type products without being seen as crossing into investment advice.
In a disclaimer to its blog post announcing the new crypto feature, Robinhood noted the “Crypto Recurring Investments” product is not available to New York customers.
A company spokesperson said that Robinhood has been working with the New York State Department of Financial Services to get launch approval. “We will update our N.Y. customers when this feature becomes available in their state,” she added.
According to its filing with the SEC in July, Robinhood has reached a $30 million settlement with that N.Y. state agency, following its 2020 investigation into Robinhood’s alleged money-laundering and cybersecurity and virtual currency regulatory violations.
According to Robinhood’s SEC filing, New York state officials found “certain deficiencies in our policies and procedures regarding risk assessment, lack of an adequate incident response and business continuity plan, and deficiencies in our application development security” related to cryptocurrency. Robinhood agreed to engage a monitor, in addition to paying the settlement sum, its SEC filing said.