Robinhood Earns Transaction Revenue Directly on Crypto. That Cuts Both Ways.

Robinhood (NASDAQ: HOOD) is a large discount broker. One of its primary goals as a business is to introduce new people to investing, which has generally led the company to lean into innovation. That includes offering new products and services, like cryptocurrency trading and prediction markets.

The company isn't doing this out of the kindness of its heart; it generates fees for its services. The interplay between cryptocurrencies and prediction markets is one that investors need to watch very carefully.

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The source of Robinhood's fee income is shifting

Robinhood breaks its transaction fee income down into four main buckets: stock trading, options trading, cryptocurrency trading, and event contracts (prediction markets). An "other" category rounds things out. Transaction fees from stock and options trading vary from quarter to quarter but remain fairly consistent over time. The same cannot be said of cryptocurrency trading and event contracts.

Without getting into the merits of crypto and event contracts as "investments," they are newer products and often attract more aggressive investors. Aggressive investors, particularly those new to investing, are sometimes lured into areas perceived as hot investment themes.

So it should come as no surprise that the transaction fee income Robinhood generated from crypto in the second quarter of 2026 fell 38% year over year, while the increase in transaction fees from prediction markets was too large to calculate (it came off of a small base). Sequentially, from the first quarter, crypto fees fell by 25%, while prediction fees rose by 50%.

Investors following the money could lead to an eventual exit

Essentially, what it looks like is Robinhood's customers have shifted from buying crypto to buying event contracts. Before event contracts, however, crypt was a strong fee generator for the discount broker. If the company's customers are just trying to "get rich quick" by investing in whatever is hottest at the moment, what happens when there's a deep, prolonged bear market? Young investors stung by huge losses could leave Wall Street forever.

There hasn't been a really bad bear market since the Great Recession. Robinhood didn't become a publicly traded company until after that painful downturn. Essentially, there's no history to rely on for guidance on what could happen to its business during a similarly bad market. This isn't a knock on Robinhood, which has been executing extremely well and providing its customers with the products and services they want. But there is a risk here that long-term investors shouldn't ignore, highlighted by the change in Robinhood's crypto revenues relative to the change in event contract revenues.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.