Robinhood (NASDAQ:HOOD) recently received a Wells Notice from the Securities and Exchange Commission, according to a KBW research report published Monday. This was unexpected considering the company’s conservative approach to cryptocurrency listings.
KBW highlighted that unlike some of its competitors, which list more than 200 digital assets, Robinhood offers a relatively small number of 15 cryptocurrencies on its U.S. platform. Analysts led by Kyle Voigt believe Robinhood’s cryptocurrency operations in the U.S. will remain unchanged and expect the SEC to file a lawsuit in the coming months.
“Our preliminary assessment suggests that Robinhood will choose to challenge the SEC in court and is more likely to prevail than many of its U.S. peers if faced with a similar challenge. This is partly due to Robinhood’s stringent listing standards,” the KBW report said.
Cryptocurrency trading accounts for 12% of Robinhood’s total revenue. KBW speculates that the SEC’s focus could be on a specific group of digital assets offered on the platform. The most important scenario from a return risk perspective is if the SEC decides to classify Ethereum as a security. That’s because Ethereum accounts for about 25% of Robinhood’s cryptocurrency trading volume.
The brokerage maintains a Market Perform rating on Robinhood stock with a target price of $20. Following the news, Robinhood’s stock price rose slightly, up 1.3% early Tuesday to around $18.
According to KBW, Robinhood shareholders may not receive a final resolution to the potential legal action until the end of 2025 at the earliest, similar to the regulatory proceedings underway against Coinbase (NASDAQ:COIN).
Featured image: Megapixl © Malirvik
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