Analysts Predict Robinhood's Success in Potential SEC Litigation

Robinhood has been issued a Wells Notice by the Securities and Exchange Commission (SEC), despite the trading platform's notably conservative stance on digital asset listings.

by Faruk Imamovic
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Analysts Predict Robinhood's Success in Potential SEC Litigation
© Getty Images/Spencer Platt

Robinhood has been issued a Wells Notice by the Securities and Exchange Commission (SEC), despite the trading platform's notably conservative stance on digital asset listings. According to a recent research report by KBW, released on Monday, Robinhood's approach to cryptocurrency has always been more cautious compared to its competitors, offering only fifteen cryptocurrencies on its U.S.

platform while others provide access to over two hundred.

Battle of the Titans: Robinhood Takes on SEC Over Ethereum

A Fight Likely to Favor Robinhood

KBW analysts, led by Kyle Voigt, suggest that if the case were to go to court, Robinhood would not only likely challenge the SEC but also stands a good chance of winning.

"Our preliminary view is that HOOD would likely fight the SEC in court and has a higher likelihood to prevail than most U.S. competitors (if put in similar situations) given HOOD’s stricter listings standards," the analysts noted in their report. This potential legal battle comes at a time when crypto trading accounts for 12% of Robinhood’s revenue.

KBW also raised concerns about the possible implications for Robinhood's business model if the SEC decides to categorize ether (ETH) as a security, as this could significantly impact about 25% of Robinhood’s cryptocurrency assets and trading activities.

"The worst-case scenario from a revenue-at-risk perspective is if the SEC chooses to move forward with categorizing ether (ETH) as a security," the report highlighted.

Market Performance and Future Projections

Despite the looming legal challenges, Robinhood's shares were trading 1.3% higher in early trading on Tuesday, around $18, with KBW maintaining a market perform rating on the stock and a price target of $20.

However, the true impact of this legal confrontation on Robinhood's operations and stock value might not become fully clear until late 2025, mirroring the timeline seen with the SEC’s ongoing case against another major crypto exchange, Coinbase.

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