Online trading app Robinhood has revealed that a substantial decline in the demand for the meme cryptocurrency Dogecoin (DOGE) could pose a risk to its business.
In its S-1 securities registration form for initial public offering (IPO) filed with the Securities and Exchange Commission (SEC) on Thursday, the company said that a significant portion of its revenue in the first quarter of 2021 is due to high demand in Dogecoin transactions.
The zero-commission trading app currently supports the buying and selling of seven crypto assets, including Bitcoin (BTC) and Ethereum (ETH). Still, the document shows that 34% percent of the company’s cryptocurrency transaction-based revenue was generated by the Shiba Inu themed crypto asset.
The company’s earnings from crypto transactions also account for 17% of its total revenue for the first three months of the year, marking a significant growth from just 4% in the last three months of 2020.
Adverse impact of changes in DOGE market and evolving crypto industry
With Dogecoin’s significant contribution in driving up the company’s earnings, Robinhood warned that changes in the DOGE market could have adverse effects on its business.
“A substantial portion of the recent growth in our net revenues earned from cryptocurrency transactions is attributable to transactions in Dogecoin. If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition, and results of operations could be adversely affected.
It also noted that the crypto industry continues to evolve and changes in laws and regulations could also impact its business.
“These laws and regulations are complex and our interpretations of them may be subject to challenge by the relevant regulators. Future regulatory developments are impossible to predict with certainty. Changes in laws and regulations, or our failure to comply with them, may negatively impact our ability to allow customers to buy, hold and sell cryptocurrencies with us in the future and may significantly and adversely affect our business.”
Lawsuits and investigations
Robinhood is currently facing dozens of proposed class-action lawsuits and investigations. The IPO filing also revealed that federal authorities seized the phone of its CEO Vlad Tenev as part of the GameStop trading probe.
The company halted the trading of GameStop and other so-called meme stocks in January because it did not have the capital required to cover the requested trading volume. Investors, as a result, filed lawsuits claiming that the action was unfair and unlawful.