Revolut is a Fintech company that has managed to disrupt the banking and investing industries. Offering customers currency exchange, debit cards, virtual cards, stock trading and crypto. It has been the first introduction to cryptocurrencies for many retail investors, but is it a good option for crypto trading? We will discuss some of the risks and downsides of investing in cryptocurrency using Revolut in this blog post.
At the time of writing, 53 different cryptocurrencies are tradable on Revolut such as Bitcoin, Ethereum, Cardano, XRP, Solana and Uniswap.
Let’s now take a look at some of the reasons Revolut may not be the best place to trade cryptocurrencies.
1. You don’t have custody of the crypto assets
Revolut’s crypto services are outsourced to Paxos Trust Company, LLC. When you buy any crypto through the Revolut App, Revolut will instruct Paxos to buy the amount that was ordered and Paxos will hold your cryptocurrency on your behalf. This means you do not have custody of the cryptocurrency when you buy it on Revolut.
Currently, there is no option to instruct Revolut to send your cryptocurrency to a Soft Wallet (e.g Trust Wallet) or a Hardware Wallet ( e,g Ledger Nano) where you control the security of your own assets. You can however send and received cryptocurrency to or from other Revolut users.
One potential issue with not having control of your cryptocurrency is that your assets could become locked or unaccessible due to policy changes by Revolut or their 3rd parties. This is even highlighted in their terms and conditions where they note that legislative and regulatory changes may stop you from being able to use your cryptocurrency.
Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect the use, transfer, exchange, and value of cryptocurrencies.Revolut Cryptocurrency terms and conditions
While it is an unlikely scenario, you would not face such issues if you had control of your own crypto assets.
2. Risk of Hacking
Billions of investors cryptos get hacked and stolen every year. In recent weeks, the accounts of 483 Crypto.com users were hacked and a sum of 31 million dollars worth of Bitcoin and Ethereum were stolen. In this case, Crypro.com refunded the users from their own funds. These large firms, Revolut included, have a big target on their backs because they hold such large quantities of cryptocurrencies on behalf of their customers. Hackers will more likely spend their time and resources going after these big wins.
Inevitably, some of these large brokers and exchanges will continuously be hacked and not all of them may be in a position to refund customers.
When you take custody of your own cryptocurrencies you can safely store them on hardware wallets that are completely disconnected from the internet and out of reach of hackers. This may be intimidating to anyone who is new to crypto but there are many learning materials and tutorials to get you up to speed.
3. You will not be able to participate in Yield Farming/Staking
When you own cryptocurrency that is sitting in Revolut you will not be able to use your crypto-assets in defi or for other use cases such as buying NFTs. Defi allows users to earn a yield on their assets. Instead Paxos Trust Company, LLC who are holding onto your cryptocurrency on your behalf will be doing this with your crypto and you will be getting nothing from it.
There are currently very nice rates available in Defi for investors which are especially useful in these inflationary times. Although, this has to be balanced against any potential regulatory changes that could occur in the future.
4 . Spread ( 1.5%)
The spread is the difference between the price at which a market maker allows you to buy and sell cryptocurrency. Brokers make a significant portion of their income from the spread they charge. Revolut charge a sizeable spread of up to 1.5%, this is quite expensive compared to competitors such as Coinbase who have a spread of approximately 0.5%.
This is something investors do not pay attention to but is a silent cost that could be eating away at your profits. If you are making regular trades this can start adding up very fast.
Its not all bad…
Due to customer requests for more flexibility and control over their crypto-assets, Revolut has been beta testing a feature that will allow users to send crypto to their own personal crypto wallets. This was first introduced to Metal UK customers in April of 2021 strictly for Bitcoin but is still not available for users outside the UK.
There are many different levels of crypto users from the novice to the hodler. Depending on how much you are investing you may have different concerns and needs when it comes to the custody of your cryptocurrency. If you plan on using your cryptocurrency for the likes of defi then Revolut at this present time may not be a viable option for you, until they add more features that allow withdrawal of crypto-assets from the App.