Think Deeper About Cryptocurrency
February 2, 2022
6 minute read – “70% of American adults would consider buying (or buying more) cryptocurrency if they could store it in their primary bank account.” – research from The Ascent, May 2021
Has cryptocurrency grown beyond its reputation as a vehicle for financing nefarious activities? The 70% statistic implies broad consumer acceptance and a willingness to tie their cryptocurrency to a financial institution. At the same time, a number of community and regional banks and credit unions have already announced their intention to be in the crypto space, as have well-known vendors.
Cryptocurrency deserves extra thought because it’s different and it’s evolving fast. We see it in the headlines every day. The thinking exercise included in this blog is a good way to get started because it can help stakeholders to directionally determine whether these are areas they’re even interested in from a strategic standpoint and, if they are, identify possible next steps.
When thinking about cryptocurrency, it’s easy to get sidetracked by potential technical hurdles, regulatory roadblocks, and the belief that this may be a fad. Set those aside for the moment. Start by imagining meaningful ways to serve your customers that fit the institution’s business model. The technical capabilities are being developed and many regulatory questions are already under review. Consider this excerpt from a November 2021 joint statement from a group of federal regulatory agencies:
Throughout 2022, the agencies plan to provide greater clarity on whether certain activities related to crypto-assets conducted by banking organizations are legally permissible, and expectations for safety and soundness, consumer protection, and compliance with existing laws and regulations related to:
- Crypto-asset safekeeping and traditional custody services.
- Ancillary custody services.
- Facilitation of customer purchases and sales of crypto-assets.
- Loans collateralized by crypto-assets.
- Issuance and distribution of stablecoins.
- Activities involving the holding of crypto-assets on balance sheet.
The following thinking exercise is not intended to result in a decision on strategic positioning with respect to crypto. It is intended to foster deeper thinking. Note that the “what could go wrong” questions are last. This is done by design to encourage more open thinking prior to considering the risks.
The scenario: 70% of consumers are interested in using cryptocurrency through their financial institution. This group is not avoiding government oversight and trusts their institution to ensure their cryptocurrency activities are safe and legitimate.
Consider some of these reasons consumers are drawn to cryptocurrency. Start by picking one or coming up with one of your own. Then think through it by asking the questions that follow:
- Investing almost effortlessly for potentially big returns
- Gaining experience with and satisfying curiosity about cryptocurrency
- Buying cryptocurrency as an inflation hedge
- Buying merchandise and services with cryptocurrency
- Getting a fast, easy loan with no credit check using cryptocurrency as collateral
- Earning interest on cryptocurrency through a savings account
- Earning interest by lending to others who borrow against their own cryptocurrency
- Avoiding fees for check cashing, prepaid debit cards, and other services commonly used by unbanked and underbanked people
- Sending fast, low-fee remittances to relatives in foreign countries while also avoiding volatile local currencies (although cryptocurrencies that are not tied to the dollar have their own volatility)
You may wish to do some focused research on a few of the reasons listed above, if they are unfamiliar. For example, if you’re considering earning interest on cryptocurrency through a savings account, you might do some narrow research to understand how crypto savings accounts work. You could put a time limit on the research to help keep it focused.
Then ask strategic questions. Use your imagination and have a working agreement with your team that the thinking is not limited to what is possible today.
- What products and services could we offer to help these consumers?
- What value proposition could we offer through these products and services?
- Think about why someone would come to you for this product or service instead of someone else
- Are these consumers in our target market?
- One thing that could provide some insight is combing your data to see how many of your customers are currently investing in cryptocurrency
- What are some of the opportunities for our institution?
- How do these new products or services help our institution live its mission, vision, and deliver on its value proposition?
- What would need to happen before we would implement?
- What makes us nervous and what could go wrong?
- How could we mitigate the risks?
- What other strategic opportunities could we pursue if we don’t make crypto a strategic initiative?
Again, the above outlines just a few questions to get started. Since the cryptocurrency arena is evolving incredibly rapidly, it is important to take time to think strategically about the role your institution wants to play, if any. The best way to learn about something so complex is to just get started and take one bite at a time.
Devoting thought to cryptocurrency sooner rather than later is beneficial because it can take some time and effort to bring everyone up to speed and, more importantly, it seems it is rapidly moving into the mainstream.