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Today we’re going to talk about the problems Coinbase has been going through recently and why new entrants like Robinhood are healthy for the market. Many customers using debit or credit cards to purchase cryptocurrencies via Coinbase have received additional charges recently.

This was due to a change to the Merchant Category Code by a number of major credit card networks. These changes were made so that future transactions with Coinbase could be classified as “cash advances,” a move made to slow down purchases of cryptocurrencies using credit cards.

Unfortunately, Visa decided to retroactively apply this to many purchases between January 22nd and February 11th, leading to many purchases becoming refunded and reprocessed simultaneously. For many customers, the reprocessed charge occurred prior to the refund for the initial charge, leading to a situation where many individuals were “double charged.”

However, there are numerous reports of some customers being charged more than twice, up to as many as 50 times. These reports are impossible to verify, so it’s hard to tell who is telling the truth vs. who is trying to defame Coinbase, but the overall number of reports suggests that some of them are likely true. As far as I am aware, there is still no explanation for why some are being charged more than twice.

Many customers were charged overdraft fees as a result of the additional charges, leading to a PR disaster for Coinbase. It’s still unclear what will happen with these overdraft fees – if they will be reimbursed by any of the parties involved (AKA the banks, Visa, and Coinbase) or if these costs will be left on the customers. Many customers also had their credit cards maxed, which can affect credit score negatively as this causes their credit utilization ratio to increase. For some it was even worse as they weren’t able to pay other bills on time.

While it seems at this point in time that Visa is responsible for this particular disaster, we still have limited information and so it’s difficult to say definitively where the fault lies. However, there is no question that Coinbase’s reputation took a hit with this event and its outlandishly poor support has led to many frustrated customers.

There have been other concerns with Coinbase recently as well, such as missing wire transfers. While these reports are much rarer than the reports we are seeing for the double charges, there have been people talking about their money being “held hostage” by Coinbase for periods longer than a month.

Many also disagree with the way that Coinbase added Bitcoin Cash to its exchange back in December, with very little forewarning to allow ample liquidity to build up in the market. This led to a situation where Bitcoin Cash spiked up to $9k in a matter of minutes before trading had to be halted.

There have been other controversies as well, such as back in June where Ethereum had a flash crash down to 10 cents before bouncing back up $300 only a few seconds later. Coinbase reimbursed losses associated with this event, but it still left a poor taste for many people.

Enter Robinhood Crypto, a new platform designed to allow for free trading of cryptocurrencies. This was all the rage back when it was announced in January because Robinhood is a well established stock broker which is notably known for commission-free trades. I’ve used Robinhood myself and I can say that despite the very limited options available (you can only open taxable accounts, no DRIPs, no trailing stops, etc.) and barebones mobile platform (no research or even charting), it executes fairly well. It is by no means competitive with other brokers like Td Ameritrade or Interactive Brokers outside of its free commissions, but that’s the whole point.

Based on the information they’ve provided in their support center, it seems they’ll be going a similar approach here as well. There are a number of limitations, perhaps most notably that you won’t be able to deposit your cryptocurrencies onto the platform. In other words, if you want to sell the Bitcoin you already have, you’ll have to look elsewhere.

However, one very welcome feature is one that they are bringing over from their stock broker side, which is instant deposits for amounts lower than $1,000. This is excellent for many of you who are investing with smaller amounts, because you won’t have to wait for your deposits to settle in most cases. The only time you will have to wait is if you have more than $1,000 waiting to settle, and even then you only have to wait for the remainder over $1,000 to settle. Your instant deposits reset whenever your transfers settle, meaning if you’re dollar cost averaging over a reasonable frame of time, you’ll never have to wait for settlement again. No more waiting 7+ days like you do at Coinbase. But wait… that only benefits small traders right? What about the big fish?

Turns out Robinhood … sort of? has your back there too with their subscription service known as Robinhood Gold. This is where things get a little tricky because based on what I’ve read, I don’t think that Robinhood is actually going to allow you to trade cryptocurrencies on margin which is what Robinhood Gold is for.

At its highest tier, it’s meant to allow you to borrow up to the cash value of your account when used in stocks. For example… if you have $2,000 then you can borrow up to $4,000 if you go with the highest tier of Robinhood Gold, which will cost you a certain amount a month. The amount you’re charged is a flat fee depending on the amount you’re allowed to borrow up to.

Anyway, the point of this is that you can get instantaneous deposits up to the tier of Robinhood Gold that you have, which is a nice bonus for those who are using the stock side as well. In fact, I see this as a nice positive because it could provide incentive for people to try out stocks. It’s not going to be worth buying Robinhood Gold just to have larger instantaneous deposits in most cases, but it is worth noting nonetheless.

It is also evident they are taking some steps to protect themselves from situations like the flash crash in Ether last June on Coinbase by limiting slippage on market orders. They have decided to limit slippage for market orders to 1% when buying and 5% when selling, which it should be interesting to see how the community reacts to this. Some will call it hand holding, others will welcome it in this absurdly volatile market. P.S: There is an explanation of slippage in the video.

However, Robinhood has had many issues of its own too while trying to take over the stock broker world, namely related to outages and poor execution of orders during peak activity. They’ve also stated in their support center that they will have weekly maintenance for the crypto platform, during which times you will not be allowed to execute orders which I could easily see being a pain point in the future.

So is Robinhood the hero we need in crypto? I think any new entrants into this market are welcome, although I’m sure the pitchforks will be raised at Robinhood in the future too. There is well over a million people on the waiting list and trading is expected to launch this month. However, they will initially only launch in 5 states so it’ll be a while for most of us before we can use Robinhood Crypto unfortunately.

Let me know your thoughts on Robinhood Crypto in the comments below.