Should I buy Bitcoin on Robinhood? (2024)

Can I buy and sell Bitcoin on Robinhood?

Yes, Robinhood offers a convenient way to buy and sell Bitcoin directly from its platform. 

Originally launched as a stock trading app in 2013, Robinhood later expanded into offering cryptocurrencies in 2018. Robinhood allows users to trade Bitcoin alongside 14 other cryptocurrencies! 

With a user-friendly interface and zero trading fees, Robinhood has become a popular choice for new investors looking to get into crypto without needing to use a dedicated cryptocurrency exchange.

What’s better for buying Bitcoin: Robinhood or Coinbase?

The choice between Robinhood and Coinbase (or another dedicated crypto exchange) depends on your unique preferences: 

Robinhood is ideal for investors looking for low fees and an app that has all of their stocks and cryptocurrencies in a user-friendly platform. The platform doesn’t charge direct trading fees, which means that some transactions (especially those involving a small amount of crypto) are cheaper. 

Coinbase is a better choice for investors looking for crypto-specific features. Coinbase also provides more advanced trading features, earning opportunities, and access to a broader range of cryptocurrencies. 

Is trading Bitcoin on Robinhood safe?

Robinhood is considered a safe platform. Let’s walk through some of the security measures that Bitcoin offers: 

• Cold storage: Robinhood holds the majority of customer crypto in cold storage — protecting it from potential hacks. 
• Two factor authentication (2FA): Robinhood allows you to turn on two-factor authentication to prevent hackers from accessing your account
• FinCEN registration: Robinhood Crypto is registered with FinCEN as a money services business. As a result, Robinhood follows government-mandated security practices.

However, some users have reported experiencing account freezes when withdrawing large amounts of cryptocurrency from Robinhood. 

I Sold Bitcoin on Robinhood. Where Is My Money?

After selling Bitcoin on Robinhood, the proceeds are typically credited to your Robinhood account balance.

Instant Availability: In most cases, the funds will be available immediately, allowing you to use them to buy other stocks or cryptocurrencies on the platform, or withdraw the money to your linked bank account.

Potential Delays: There may be some delays in accessing your funds, especially if you’re selling a large amount of Bitcoin. Robinhood may trigger additional security checks or place a temporary hold on the funds if there are any account issues.

Robinhood regulatory challenges

In recent years, Robinhood has faced controversy and regulatory challenges. Let’s go through them: 

Civil fraud: In September 2020, the SEC initiated a civil fraud probe into Robinhood, alleging that the company misled users about its practice of selling clients' orders to high-frequency trading firms. Robinhood paid $65 million to settle the claims. 

GameStop trading controversy: Robinhood was criticized for limiting trading of GameStop stock during its 2021 rally. 

Massachusetts fine: Robinhood agreed to pay a $7.5 million fine to settle allegations by Massachusetts regulators for encouraging beginners to make risky trades through ‘gamified’ aspects of the Robinhood app (like confetti raining down after a trade is completed). 

Will the SEC limit Bitcoin trading on Robinhood?

It’s unlikely that the SEC will limit Bitcoin trading on Robinhood. 

The SEC has recognized that Bitcoin is a commodity, not a security — which means that it falls outside of the agency’s purview. 

The SEC did threaten Robinhood with charges over its crypto operations in 2024. 

While the SEC cannot limit Bitcoin trading — it may limit other cryptocurrencies that are considered ‘unregistered securities’. It’s been speculated that SEC pressure is why Robinhood removed SOL (which was previously available) from the platform. 

Do I actually own the BTC on Robinhood? 

Robinhood Wallet gives you access to the private keys of your Bitcoin and other cryptocurrencies — which means that you can transfer your coins to another exchange or another wallet. 

Can I transfer my Bitcoin from Robinhood to another wallet?

Yes, Robinhood offers the ability to transfer Bitcoin and other cryptocurrencies to external wallets. This means that you can purchase your cryptocurrency on Robinhood and transfer it to a self-custody wallet. 

Transferring your cryptocurrencies may come with blockchain network fees. Robinhood does not charge additional fees. 

What are the tax implications of buying/selling Bitcoin on Robinhood?

Cryptocurrencies — like Bitcoin — are taxed similarly to stocks. You’ll pay capital gains tax when you sell or trade away your Bitcoin. 

Capital gains tax: If you sell Bitcoin on Robinhood, you’ll incur a capital gain or loss depending on how the price of your Bitcoin has changed since you originally received it. 

 The tax rate you pay depends on how long you held the Bitcoin before selling.

Short-term capital gains (applies to assets held for 1 year or less) are taxed at your regular income tax rate (10-37%).

Long-term capital gains (for assets held longer than 1 year) are taxed at a lower rate (0-20%).

Remember, there is no tax for buying or simply holding BTC and other cryptocurrencies. 

Will Robinhood send tax forms for my cryptocurrency?

Robinhood will issue a Form 1099-B, which reports your capital gains or losses from cryptocurrency sales. This form is typically made available by mid-February each year, making it easier to report your taxes accurately.

What cost basis method does Robinhood use?

Robinhood uses the First In, First Out (FIFO) method to track the cost basis for your Bitcoin sales. This means the first Bitcoin you bought will be considered the first sold when calculating your capital gains.

In conclusion 

Robinhood offers a simple and cost-effective way to buy and sell Bitcoin, making it an appealing option for new investors. However, it does come with limitations, especially for those looking for advanced crypto features.