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Ditch Robinhood

Just a short post to clarify for people who don't seem to understand the difference between selling crypto and selling "notes," as Robinhood does. Any "exchange" (using that term broadly) that does not allow you to withdraw your crypto to a private wallet is doing you a massive disservice.

I'll use this analogy to explain: Supposing you wanted to buy a classic car, hoping it will appreciate in value. If you're buying at the "Robinhood" dealership, they don't let you drive the car off the lot. They don't even let you see the car. They just give you a brochure with a photograph of it. They tell you if you ever want to sell it, just let them know and they'll sell it. So here are some of the problems:

There Are Opportunities Available to You When You Self-Custody.

In the car analogy, you discover that there's a museum that will pay you to park the car at the museum. With the Robinhood dealership, you can't. What opportunities are there for crypto? Things like participating in liquidity pools, staking, and a host of other "who knows" that are coming in the future.

Your Third-Party Custodian May Lie to You.

That's right, you have to take the Robinhood dealership's word for it that they're actually holding the car for you. Maybe you trust them so it's not an issue for you, but why would you trust any dealership that does not let you drive the car off the lot once it's yours? (And yeah, they don't have the best track record.) Maybe they only hold ten of those cars, but they sold eleven and figure they'll never be in a situation where they have to sell all eleven. Let's take a moment to look at Robinhood's Crypto Risk Disclosure:

"Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a particular cryptocurrency suddenly drops, or if trading is halted due to recent news events, unusual trading activity, or changes in the underlying cryptocurrency system."

So they're not really promising to let you sell whenever you want. They're warning you that they may take away your ability to sell when the price drops, when there's "recent news events," when there's "unusual" trading, or when there's "changes" in cryptocurrency. Not particularly reassuring. I suspect if you want to sell, you're not going to be happy hearing that they're unwilling to sell as a result of "news events."

Your Third-Party Custodian May Just Be Incompetent.

Okay, so let's say the Robinhood dealership really did hold that car for you, and they really did plan to let you sell any time you wanted, there's still a risk that they simply mismanage the job of holding the car for you. "Oops, someone snuck into the garage and stole it from us. Sorry." Hacking can happen with third-party custodians. Maybe some disgruntled or corrupt employees collude, etc. Sure, we can reasonably assume they do what they can to prevent it, but there's no such thing as perfect security.

Even If Everything Works As Advertised, You're Still Potentially Getting Screwed On Taxes.

Maybe you're not too worried about any of the above. You may be thinking, "well, when I'm ready to get around to it, I'll just sell the crypto on Robinhood, and I'll rebuy it someplace else." Great. But in many places in the world (the United States, for example), you've just triggered a taxable event that could have been avoided (or at least delayed until a time when you're strategically making the decision to sell for tax reasons.)

On Top of Everything Else, Robinhood's Selection of Cryptos Is.. Questionable.

We've been seeing the same question get asked repeatedly on the Daily Thread. Why are we seeing pumps in cryptos like Ethereum Classic? (Or Bitcoin Cash, or Bitcoin SV). One thing these cryptos have in common is they're listed on Robinhood. I'll leave it to you to do your own research, but suffice it to say, if the oil and gas industry created a company Tesla Classic to make electric cars that drive poorly as a tactic to hurt Tesla, I would steer clear from investing in it (even if short term profits could be made).

But I Heard Robinhood Is Going to Implement Crypto Withdrawals Soon!

Sorry, but the ability to withdraw your crypto should be the FIRST feature implemented by an exchange, not a feature planned on the roadmap. Just like a dealership that doesn't allow you to "leave with the car after purchase" is not ready to do legitimate business.

TL;DR

Dump Robinhood for Crypto. You'll be glad you did when you learn all that crypto has to offer.

(Edit: for Readability)