The markets are mixed on Wednesday, but the direction for Robinhood (NASDAQ:HOOD) is clear. Shares of HOOD stock are getting walloped, falling more than 17% on the day. In fact, the stock is making new lows in late-afternoon trading.
That’s as investors de-risk across multiple crypto-related assets. While Robinhood stock may not face any direct issues, there are reasons why investors are hitting the sell button.
First, growth stocks remain under pressure and HOOD stock is very much included in this group. Second, crypto is under pressure due to the issues with FTX (FTT-USD), the Bahamian-based cryptocurrency exchange.
Bitcoin (BTC-USD), Ethereum (ETH-USD), Coinbase (NASDAQ:COIN) and others are all swooning as a result. In fact, every asset listed in this article thus far — HOOD stock, COIN stock, Bitcoin and Ethereum — is down more than 10% so far on the day. All of them are also near session lows.
What’s Going on With FTX and What Does It Have to Do With HOOD Stock?
Robinhood is being lumped in the drama going on between FTX and Binance (BNB-USD). While seemingly unrelated, there is a reason. For those that are unaware, there are concerns about FTX’s liquidity situation at the moment. As a result, Binance has proposed a takeover of the firm.
FTX CEO Sam Bankman-Fried has 56,273,469 shares in HOOD stock, good for a 7.6% stake. This is notable as “speculation has turned to if Bankman-Fried will have to sell the stake to shore up some personal liquidity.”
That said, Robinhood itself is not caught up in the reported liquidity situation. It also does not appear to have an unreasonable amount of crypto exposure.
Instead, HOOD’s main correlation is with investors’ “risk-off” attitude coupled with worries and speculation about Bankman-Fried’s stake. Further, Mizuho Securities Dan Dolev argues that “Robinhood generates only around 14% of its revenues from trading crypto tokens.”
So in reality, nothing in this particular instance is wrong with Robinhood. In fact, Robinhood seems to have rather limited exposure to the situation — both to FTX and Binance, and to the swoon in crypto.
Yes, it’s possible that the FTX CEO may need to sell some or all of his stake in HOOD stock. However, that’s a temporary situation. If I were looking to invest in Robinhood, the decision would not rest of this news story, but with the fundamentals overall.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.