Robinhood is clearly bracing for more outrage as it asks retail investors seeking to buy cryptocurrencies on its free app “immediately” to stop trading. The broker temporarily banned purchases of some cryptocurrencies, as did Bitcoin, which rose 20% in 24 hours, and Dogecoin, which soared 800%.
"Due to unusual market conditions, we have temporarily turned off the immediate purchasing power of cryptocurrencies. Customers can still use the settled funds to buy cryptocurrencies. A spokesman for Robin Hood said on Friday: "We continue to monitor market conditions and communicate with customers.
Right now, users of the free trial app can only buy cryptocurrencies with cash already stored in their accounts. If they want to buy more goods, it takes up to five business days to receive and clear their time deposits.
Previously, Robinhood investors were allowed to use the so-called “just-in-time purchase” feature, which can top up a trader’s account and increase incoming deposits to a certain limit until his funds transfer goes through.
The new restrictions are believed to be the result of a buying spree by Dogecoin, a cryptocurrency created in 2013 inspired by the popular meme of the Shiba Inu dog. After a discussion with a Reddit group called Satoshistreetbets, the joke-based coin’s market value soared more than 800% overnight, similar to WallStreetBets sparking a revival in GameStop’s stock.
Also behind the rapid rise was Elon Musk, the founder of Tesla, who tweeted a digital magazine cover featuring a dog, in an apparent endorsement of Dogecoin. Follows of the world’s richest man saw the tweet as an endorsement of Dogecoin’s current rebound.
Since cryptocurrency trading is unregulated, there are no rules to prevent large-scale buying or emergency selling. Investing apps can only stop or limit transactions by their users, because they don’t apply automatic brakes once the asset moves a certain amount (like in the Dogecoin case).
The new restrictions come hours after Robin Hood reopened limited purchases of battered video game retailer GameStop stock and other meme securities. Robinhood attributed its previous decision to ban trading to complying with SEC requirements on net capital obligations and clearing house deposits.
Robin Hood, best known for allowing individuals to invest without paying trading commissions, on Thursday banned users from buying GameStop, AMC and other companies after their stock prices soared.
However, Robinhood users say the freeze freezes their trades, while favouring Wall Street hedge funds and deep-pocketed investors.