Robinhood Restricts Cryptocurrency Trading Amid Dogecoin Saga

Robinhood is apparently ready to face more anger after pulling the plug on retail investors seeking to ‘instantly’ buy Cryptocurrencies Cryptocurrencies By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw Read this Term on its no-fee app. The broker has temporarily disabled some cryptocurrency purchases just as Bitcoin rose 20%, and Dogecoin soared 800% in 24 hours.

“Due to extraordinary market conditions, we’ve temporarily turned off instant buying power for crypto. Customers can still use settled funds to buy crypto. We’ll keep monitoring market conditions and communicating with our customers,” a Robinhood spokeswoman said on Friday.

Now, users of the free-commission app can only buy cryptocurrencies with cash they already deposited in their accounts. If they want to buy more, it takes up to five business days to receive and clear their regular deposits.

Before that, Robinhood investors were allowed to use a so-called 'Instant Buying' feature which tops-up a trader’s account with forthcoming deposits to certain limits until his money transfers go through.

The new restrictions are believed to be a result of frenzy buying of Dogecoin, a cryptocurrency created in 2013 inspired by the popular meme of the Shiba Inu dog. The joke-based coin has seen its market value soar by more than 800% overnight after discussions on a Reddit group called SatoshiStreetBets, similar to how WallStreetBets sparked the resurgence of GameStop stock.

Behind the meteoric rise was also Tesla founder, Elon Musk who tweeted a digital magazine cover featuring a dog in apparent support of Dogecoin. Followers of the world’s richest man recognized the tweet as an endorsement to the current rally in Dogecoin.

pic.twitter.com/a6kmk0PEgM

— Elon Musk (@elonmusk) January 28, 2021

Because cryptocurrency trading is unregulated, there are no rules to stop mass buying or panic sell-offs. Investment apps can only stop or restrict their users trading since they do not have automatic brakes that apply once an asset moves by a certain amount - as happened in Dogecoin's case.

The new restriction came a few hours after Robinhood reopened limited buying of the beaten-up video game retailer, GameStop stock and other meme securities. Robinhood attributed its earlier decision to ban trading to complying with the SEC requirements around net capital obligations and Clearing House Clearing House A clearing house is defined as an intermediary between two parties, a buyer and seller, which helps facilitate the overall process from trade inception to settlement. Clearing houses streamline the exchange of payments, securities, or derivatives transactions.The clearing house is situated between two clearing firms who also helps reduce the risk of either member firm failing to honor their respective trade settlement obligations.Buyers and sellers enter into legally binding agreements for the e A clearing house is defined as an intermediary between two parties, a buyer and seller, which helps facilitate the overall process from trade inception to settlement. Clearing houses streamline the exchange of payments, securities, or derivatives transactions.The clearing house is situated between two clearing firms who also helps reduce the risk of either member firm failing to honor their respective trade settlement obligations.Buyers and sellers enter into legally binding agreements for the e Read this Term deposits.

Robinhood, known for allowing individuals to invest without paying trading commissions, blocked users on Thursday from purchasing GameStop, AMC, and others after the stocks skyrocketed in value.

However, Robinhood users said the freeze harmed their trading while it favored Wall Street’s hedge funds and deep-pocket investors.