Shares of Robinhood Markets (HOOD) closed the holiday-shortened week in strong fashion, surging after the financial technology (fintech) company introduced Robinhood Chain — an internally developed Ethereum-based layer 2 blockchain that will serve as a foundation for the company’s burgeoning presence in the world of tokenized assets.
The news sent the Direxion Daily HOOD Bull 2X ETF (HODU) — designed to deliver 200% of the daily returns of the stock — soaring, confirming the ETF lived up to its billing as a fine one-day instrument. That doesn’t mean tactical traders should ignore the geared Robinhood ETF going forward. As Robinhood Chain evolves, it could be a headline-generator and catalyst for short-term usage of HODU.
“Without institutional-grade oracle infrastructure, tokenized assets cannot scale or maintain the security required by regulated market participants,” according to the company. “Operating as an Ethereum layer-2 network built on Arbitrum’s Orbit technology, Robinhood Chain addresses these inefficiencies with Chainlink by establishing an environment built specifically to unlock advanced onchain finance use cases for everyday Robinhood users.”
Tailwinds Abound for HOOD, HODU
Wall Street is taking note of Robinhood’s broadening product base — one that could bring opportunity for traders to embrace the leveraged HODU. On Thursday, Mizuho named the financial services stock one of its top picks for the month of July. Analyst Dan Dolev rates the stock “outperform” with a $115 price target.
“Investors have been concerned historically with HOOD’s user graduation risk (i.e. leaving HOOD for a financial advisor),” Dolev wrote in a report to clients. “We believe that the company has done an impressive job mitigating these factors through the acquisition of TradePMR (financial advisor marketplace) as well as its continued strong execution on its product roadmap of comprehensive financial services.”
Another well-documented catalyst for Robinhood and HODU is the company’s emerging prediction market footprint. A recent report by Artemis suggests that as of June 25, 12.3 billion event contracts changed hands via Robinhood, potentially (not confirmed) stoking revenue of $123 million. If that proves to be the quarterly number, it’d put the company within striking distance of its previously stated goal of a $500 million annual run rate in event contracts.
Robinhood’s event contract growth is important for another reason that’s relevant to traders considering HODU. That business could soon surpass cryptocurrency in terms of revenue contributions. Crypto is arguably the more volatile of those two endeavors. Said another way, Robinhood’s digital currency transaction revenue can and does languish during crypto bear markets.
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