$XRP ETF & Robinhood Listing Is Bad For Investors – Here’s Why

Rumors of Robinhood listing Ripple ($XRP) in Q1 2024 have been circulating on X since August 2023, but the platform has remained silent on the matter. 

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In fact, $XRP’s extreme volatility and lawsuit against SEC gave Robinhood pause for thought, given its cautious approach and last year’s delisting of several major cryptos, including $SOL and $MATIC following SEC’s risk assessment. 

However, Ripple’s recent court victory may have changed the landscape for $XRP. With the legal uncertainty finally clearing, Robinhood’s regulatory concerns might be easing. 

Furthermore, the current rise in $XRP’s price (14.01% year to date) could be seen as a sign of renewed investor confidence, potentially incentivizing Robinhood to reconsider its stance. 

Ripple CEO Brad Garlinghouse also confirmed the company would welcome the $XRP ETF in his Bloomberg interview in February 2024. 

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If so, will the $XRP Robinhood listing and introduction of ETF benefit investors? On a surface level, that’s a win for the crypto community, but it raises deeper questions about asset ownership in the Web3 space. 

The ‘Not Your Keys, Not Your Coins’ Dilemma 

Yet, the potential listing of $XRP on Robinhood presents a scenario some would call a centralization creep.

The now-famous saying, ‘not your keys, not your coins,’ emphasizes that if you don’t control the private keys to your crypto holdings, you don’t truly own them.

CEXs and other centralized financial platforms undoubtedly make crypto holding and trading easy. However, this convenience comes at the cost of asset control.

These platforms essentially act as custodians, similar to how traditional stockbrokers hold shares on your behalf.

Take the situation on the US stock market. Many investors don’t actually own the underlying shares they buy but rather IOUs (documents acknowledging a debt) from other parties. 

Mechanisms like Fail-to-Deliver (FTDs) and the inability to locate shares further highlight this disconnect between ownership and traditional investment practices.

In the worst-case scenario, the platform could crash, leaving investors unable to access their holdings. 

Cases like Mt. Gox, when hackers stole around 850K $BTC, or FTX, when the platform collapsed, with cumulative investor losses counting billions, are only a few examples of centralization risks. 

The Double-Edged Sword of $XRP ETFs

Introducing $XRP ETFs could potentially be a stepping stone for developing alternative risk premia (ARP) products tied to the token.

ARPs are investment strategies that capture specific risk premiums in the market. In the context of $XRP, an ARP ETF could track a basket of assets that benefit from $XRP’s price movements, including derivatives like options contracts or volatility indices.

Offering ARPs is attractive for financial platforms as they come with higher fees than regular ETFs. However, derivatives are complex and risky. 

The preceding surge in mortgage-backed securities, which bundled mortgages from different borrowers into a single derivative, allowed investors to buy a piece of the housing market. 

Unfortunately, most investors didn’t truly understand how these financial instruments worked. This, coupled with the difficulty of assessing their value and risk, led to a domino effect of mortgage defaults. Simply put, the decline in the value of one mortgage rippled through the entire system.

Circling back to $XRP, introducing an ETF could offer traditional investors a convenient way to  access to the crypto market without directly buying and holding tokens. However, this could also have unexpected implications for the broader financial system. 

 The Rise of Speculative Assets

As regulations tighten and stablecoins lose their peg (take $UST, de-pegged from $USD in May 2022 or uncertainty about $USDT’s 1:1 $USD backing), many investors flee to more volatile pastures. 

Speculative assets, like meme coins and presale cryptos, might not hold long-term potential but may offer quick returns and allow for diversifying investment portfolio.

Presales like Dogeverse ($DOGEVERSE) raise millions in mere days, while prices of established cryptos like $BTC and $ETH fail to reach analyst predictions. ($BTC now hovers under $60K despite expectations of it reaching $70K post-halving.) 

Closing Thoughts 

Potential $XRP Robinhood listing raises questions about the future of crypto. Will mainstream adoption through centralized platforms come at the expense of core blockchain principles like decentralization?

Given this context, investor interest in high-risk, high-return tokens is unsurprising. In these uncertain times, we want to remind you to always do your due diligence and never put all your eggs in one basket.