What the cryptocurrency trend means for credit unions

How prepared is your credit union for cryptocurrency?

Starting as an inventive experiment in 2009, cryptocurrency has evolved into a worldwide phenomenon that is simply too big for credit unions to ignore. The father of crypto and the current market heavyweight, Bitcoin, spawned a trading and financial ecosystem that today includes hundreds of cryptocurrencies valued in aggregate at nearly one trillion dollars. But, that number goes up and down, almost depending on the day. It peaked at $2.9 trillion in November 2021 and now sits at around $926 billion, according to Reuters.

Driven by rabid interest by millennials and Gen Z, dozens of cryptocurrency exchanges like Coinbase exist where users can easily invest in the coins they choose. Consumers are gaining and losing fortunes in the crypto space — and the allure of becoming the next “crypto-millionaire” is at the forefront of much of the younger generation’s minds.

Segmint’s own analysis shows that in the majority of financial institutions, 1.5%-2.5% of accounts have had transactions with cryptocurrency exchanges in the last 6 months. Therefore, the message is clear: financial institutions need to be aware and ready to help consumers with advice, products and services about the cryptocurrency asset class.

Crypto and FIs

Consumer participation in cryptocurrency was initially led by startups and Fintechs like Coinbase and Robinhood, and now traditional financial institutions are getting into the act. Major national institutions like U.S. Bank, J.P. Morgan and Morgan Stanley are offering cryptocurrency custody services. What about credit unions? Credit Union Times reports that 14% of CUs plan to offer crypto investing, trading or custody in 2022.

If credit unions don’t meet members’ needs, they will go elsewhere. People are buying crypto for short- and long-term investments, and institutions need to be aware and adaptive.

How Best to Educate Account Holders

According to Alkami’s 2022 Digital Banking Transformative Trends Study, 39% of millennials and 25% of Gen Z are unsure if their current primary financial institution will remain their PFI next year. They are also the largest generational group that uses cryptocurrency. Providing crypto education and services may be a way to bridge the gap and turn millennials into loyal account holders. How best to do that?

Risk education

Cryptocurrency, as a relatively new asset class, brings a lot of risks that your members may not understand, and there are a few key things to watch.

Cryptocurrency is in a unique gray area in which gains and losses are taxable and need to be reported to the IRS. But the issue of who is regulating crypto is yet to be decided. In response to the fact that there had been no centralized regulatory framework for crypto, Congress introduced a bill that would treat cryptocurrency as a commodity and give the Commodity Futures Trading Commission jurisdiction. The bill, called the “Responsible Financial Innovation Act,” is designed to bring stability and clarity to crypto regulation and would position the U.S. to be the world leader in crypto innovation. But, it’s not a law yet.

In addition to regulation, your members need to know that scams are out there. A new cryptocurrency project pops up every day, not all of them legitimate. They can prey on unknowing investors looking to find the next Bitcoin.

Even in legitimate operations, cryptocurrency is an extremely volatile asset class. Prices can rise and fall extremely quickly with people making and losing fortunes in a matter of weeks.

Assign roles and monitor data

Appoint a member of your team, or multiple members, to serve as in-house cryptocurrency experts. From there, you can implement a few different strategies to educate and target members:

• Creating an informational cryptocurrency email campaign targeting members showing a history of investment product adoption, or those who are making payments to known crypto wallet providers, is a great way to position your institution as a trusted resource for industry data.
• Monitoring transactions to and from cryptocurrency exchanges is an easy way for a CU to understand how engaged its member base is with cryptocurrency. Targeting those members with cryptocurrency transactions by total balances or other select criteria can help a CU further hone its messaging on the subject.
• Most importantly, define a game plan. Whether simply being an information clearinghouse for members or going all in and partnering with a fintech to provide cryptocurrency-related services, CUs should have a plan and a strategy to address this space.

Bottom line

The role traditional financial institutions can play in the cryptocurrency market is, admittedly, ill-defined right now. But U.S. banking regulators like the Federal Reserve, FDIC and others are working to clarify matters in 2022.

What’s most important is to stay tuned into the trends, plan for the future and leverage the power of the data regarding members’ spending habits to determine how much interest there is in crypto in your FI. At Segmint, we can help with that. Contact us today to learn more.