Bitcoin ETFs and the call for credit union crypto custody

Traditionally, new asset classes start at the top of the market and slowly filter down to everyday consumers. However, the internet era has turned that paradigm upside down, especially in the realm of finance. For those entrenched in traditional finance, the emergence of digital assets, particularly Bitcoin, has been challenging to grasp. That’s understandable! (How could all those ones and zeros add up to anything meaningful anyway?) Yet, the landscape is rapidly changing with the introduction of Bitcoin Exchange-Traded Funds (ETFs), marking a significant milestone not just with crypto investments, but in our understanding of investment vehicles and traditional banking ‘products and services.’

Until January, it was a foregone conclusion that ETFs were for ‘real’ securities – you know, like gold, silver and other physical commodities which have never been subject to price volatility or the shell games of the central bankers…

Just two months ago, things changed, and the first round of Bitcoin ETFs were approved and went live, risks and all. Bitcoin ETFs offer investors exposure to Bitcoin without the complexities of buying, storing, and securing the digital currency themselves. Instead of directly purchasing Bitcoin, investors can buy shares of the ETF, providing ownership of the underlying asset. This structure offers advantages like ease of access, liquidity, and regulatory oversight.

Cost or opportunity?

Bitcoin ETFs provide convenience, and it turns out they also generate significant transaction fees for large asset management companies like BlackRock and Fidelity. With daily trading volumes in the billions of dollars, these companies earn (tens of) millions in transaction fees, contributing to their profitability.

So, while the big guys capitalize on the convenience their ETFs offer, credit unions are stuck holding the (empty) bag as deposit outflows accelerate. Consumers seeking secure storage solutions for their digital assets are turning to these ETFs, bypassing traditional financial institutions, and rightly so. They have few options. This trend poses a challenge for credit unions, as they face the risk of losing depositors and revenue streams.

Despite the challenges for credit unions, there is a massive opportunity, tens of billions in fact, for those willing to innovate and meet the evolving needs of their members. By offering secure custody services for Bitcoin, Ethereum, and other cryptocurrencies, local institutions can create truly novel banking products and services to meet members’ demonstrated needs, secure the fruits of their labor, and generate sustainable revenues for their community institutions.

Credit union leaders have a real opportunity to retain, engage, and attract members with a product, service, and education that meets the demands of the digital age; strengthening their well-earned, trusted advisor status as the world shifts to digital assets and data-money. By leveraging their trusted reputation, personalized service, and community-focused approach, these institutions can position themselves as leaders in the digital asset custody space, capturing a share of the growing market and providing value to their members.

Educating and empowering retail investors

As the cryptocurrency market continues to mature, educating retail investors about the benefits of secure custody solutions becomes increasingly important. Most retail investors don’t fully understand the risks associated with holding cryptocurrencies on exchanges or in digital wallets. Credit unions can play a crucial role in educating investors about the importance of decentralized, secure storage, and providing peace of mind through local, secure custodial services.

By offering educational resources, seminars, and personalized guidance, credit unions can empower retail investors to make informed decisions about their digital asset holdings. This educational initiative not only enhances member trust and loyalty but also fosters a more resilient and sustainable financial ecosystem.

Credit unions have a unique opportunity to differentiate themselves in the marketplace by emphasizing trust, transparency, and long-term relationships. Unlike large financial institutions or on-line, anonymous apps, credit unions have a deep understanding of their members’ needs and preferences, allowing them to provide familiar, tailored solutions and personalized service.

By offering secure custody services for cryptocurrencies, credit unions can strengthen their relationships with existing members and attract new clients seeking comprehensive financial solutions. This trust-based approach not only enhances member satisfaction but also fosters long-term loyalty and retention.

As the cryptocurrency custody market continues to evolve, credit unions must navigate a complex regulatory landscape to ensure compliance and security. Regulatory bodies like the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are closely monitoring the cryptocurrency space, imposing strict guidelines and requirements for custody providers.

Local financial institutions must partner with industry experts, thought leaders, and strategic consultants who have skin in the game. There are a lot of moving parts in this digital space, which will require due diligence and an investment in robust compliance measures, cybersecurity protocols, and risk management practices to safeguard member assets and follow regulatory standards. By demonstrating a commitment to security and regulatory compliance, these institutions can redefine the crypto experience and instill confidence in their members and differentiate themselves in the competitive cryptocurrency custody market.

To BTC or not to BTC: That is the question

The rise of BTC ETFs presents both challenges and opportunities for credit unions. While transaction fees and net deposit outflows may pose immediate concerns, there is immense potential for innovation and growth in the cryptocurrency custody space. By embracing this opportunity, credit unions can adapt to the changing financial landscape, meet the needs of their members, and thrive in the digital age.

As the digital economy continues to evolve, credit unions must remain agile and proactive in addressing the needs of their members. By offering secure custody services for cryptocurrencies, credit unions can position themselves as trusted custodians of digital assets and continue to serve as pillars of stability and innovation in their communities. When you are ready to take action, we’ll show you how easy it can be to take your first steps into this brave new world.