Robinhood, Coinbase find sanctuary in interest income amid market rout

The U.S. Federal Reserve's rate increases are anticipated to increase interest revenue for bitcoin exchange Coinbase Global Inc. and commission-free brokerage Robinhood Markets Inc.

Investors paid little attention to (interest income) when rates were low and the cryptocurrency market was booming, but it is becoming essential as a source of income for Coinbase, according to Barclays analysts.

According to J.P. Morgan analysts, Robinhood's profitability would be affected by increased rates at a pace that is somewhat faster than anticipated.

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Inflation, which after five rate increases this year, is still running at levels not seen in four decades, has caused central banks across the globe to scramble to chill the economy in an effort to manage it.

This has caused a startling turnabout in the fortunes of lenders who were previously under pressure from near-zero interest rates.

For those who qualify, Robinhood lets them borrow money to buy equities and adds interest to the loan.

According to analysts, the "margin investing" option, which allows users to borrow money at far lower rates than the going rate, may also be used to increase subscriptions to the premium Robinhood Gold service.

J.P. Morgan said, "We envisage Robinhood hiking rates to levels not too different from peers."

In contrast, Coinbase makes money from the reserves that support USD Coin (USDC), the second-largest stablecoin by market value that it has created in partnership with Circle.

On the loans it gives clients using bitcoin as collateral, it also makes interest.

According to IBES statistics from Refinitiv, analysts anticipate a 65% increase in net interest revenue at Robinhood, while a 28% increase in subscription and service revenue, which includes interest income, at Coinbase.

However, the businesses are also anticipated to announce a fall in total third-quarter revenue as consumers traders chose safety in cash rather than speculating on hazardous assets due to inflation.

After the bell on Wednesday, Robinhood is scheduled to release its third-quarter earnings, and Coinbase is scheduled to do the same on Thursday.