With the rapid crash in Bitcoin’s price, the conversation about Bitcoin and other cryptocurrencies has changed dramatically. Where does this leave credit unions that are considering adding crypto to their offerings? Here we will explore this question and provide a strategy we believe is the right one for credit unions working for responsible innovation.
A passionate spokesman has given way to subdued uncertainty – there are not many laser eyes on Twitter anymore. The first excitement of the potential of offering crypto – or more specifically Bitcoin, which NYDIG has led with, through a credit union has quite rightly given way to uncertainty about crypto’s place in the banking system. Where many industry leaders were previously optimistic about this new, innovative resource, the recent downturn in Bitcoin and other cryptocurrencies has made many feel cold when it comes to crypto investing.
This decline comes just as many credit unions began thinking about offering crypto investment services. Cornerstone Advisors ‘latest report, “What’s Going On in Banking 2022: Rebounding From the Revenue Recession,” found that 9% of credit union leaders plan to offer cryptocurrency investment services by 2022. This makes sense given many consumers’ interest in using their financial institution to get access to crypto – Cornerstone found that 60% of crypto owners prefer to use their financial institution to invest in cryptocurrencies.
BAI, a non-profit organization that conducts research for the financial industry, found in its 2022 Banking Outlook Report that more than half of Gen Z and millennials have invested directly in cryptocurrencies or in funds with exposure to crypto.
“We are at a crossroads between the original, battle-tested market-leading cryptocurrencies and the newer emerging blockchains. Bitcoin and Ethereum have clear user bases from libertarians to dapp enthusiasts,” said Unifimoney’s chief investment officer Max Osbon. for their own good. Their user growth and value increase to the ecosystem has been much slower. Market values are at risk when the products are not used or when the user base does not grow very quickly. When the Fed withdraws liquidity, alternative cryptocurrencies will be hit hard, as they have been. “
However, as the crypto market takes a dip, credit union leaders are questioning whether they should consider offering crypto services at all. No credit union will advocate gambling as a path to long-term value creation, so why offer Bitcoin?
Crypto has always been a risky, volatile asset, but now, more than ever, financial institutions are skeptical of the value of crypto. So, should credit union professionals scrap their crypto-investment services? In short, yes and no – how you do it really matters.
Treat crypto like any other investment asset
In their book “This Time Is Different: Eight Centuries of Financial Folly”, Carmen Reinhart and Kenneth Rogoff provide ample evidence that it never is. Risky, volatile assets are just that, whether they are 17th-century tulips or Bitcoin today. This does not mean that alternative assets do not have a role in investment strategies – they only have a role in a properly diversified, risk-appropriate, long-term investment portfolio.
When looking at a long-term approach to protecting and increasing wealth diversification, it is crucial. This includes time as a diversifier to negate the risk of market timing, contribution to average dollar cost over time, as well as diversification of asset classes and within asset classes.
One of the challenges for investors who want to invest in crypto through the credit union is that many of the early users have implemented investment platforms that only provide access to one or a handful of cryptocurrencies – e.g. Bitcoin and maybe Bitcoin and Ethereum. Offering a single asset class and a single example of that asset class will obviously not be considered by any sensible person to represent a diversified investment strategy.
All assets go through cycles, and crypto is no different – the long-term potential of blockchain technologies is very bright, and it is likely that crypto will return in the end. In fact, this is not the first Bitcoin crash. Crypto dropped dramatically in 2018, and many people at the time claimed that crypto was “dead”. The price remained low for a while until it picked up again in 2021. It is almost impossible to say when exactly the crypto will rise to its previous heights, or if it will do so at all, but the probability is that it will do so. . For investors who have not started investing in crypto, now may be a good time to start – but as a small part of an overall, risk-adjusted, long-term asset management strategy.
Crypto as part of a digital wealth management solution: An easy way to increase membership engagement, acquisition and storage
While credit union executives can be very different in terms of interest in and acceptance of crypto and asset management services, many are noticing the huge growth in deposits, allowing their members to use third-party investment apps like Coinbase and Robinhood. This impact on the very core of their business is getting everyone’s attention and underscores the need to think about how to better meet members’ needs that are not addressed today, but are served by third-party investment apps.
What is clear is that regardless of how executives believe consumers are voting for their wallets, if their needs are not met by their financial institution, they will go to a fintech disruptor instead.
When credit unions do not offer an easy way to invest in crypto, their members want go on exchange. If the credit union’s digital platform does not offer access to stocks and ETFs, they will want Go to a fintech company that welcomes any investment. These members are not limited to Gen Z and millennials – one bank reported that over half of their traditional registered investment adviser clients also invested directly using self-managed third-party investment apps. Financial institutions that offer traditional wealth advisory services also become aware of the need to serve younger and less affluent clients before they become rich enough for traditional advisers, because the probability is that when they are rich enough, they will already be working with someone else who was there when they were younger and less prosperous. These younger members will be more likely to stay with these companies as their assets increase, which removes a future high-wealth member from the credit union movement.
Retaining younger members of the credit union family requires future-oriented, technology-driven solutions to guide the next generation of wealth builders. Offering easy ways to invest in crypto within the credit union builds loyalty and commitment from an early age. Giving the access members want today keeps them more engaged in the short term and lays the foundation for growth towards future wealth in your organization.
Credit unions should not write off crypto services, but offer them as an integral part of a digital asset management solution. There are three times more customers at Robinhood than at Coinbase. Aside from offering better investment choices and the ability to diversify a portfolio by offering both traditional and alternative assets, you maximize the opportunity to engage with these clients.
Although the demand for crypto is not as it was weeks ago, the demand is still there, and the need for a long-term asset management method is never better emphasized when the market is down. Even better, when crypto re-emerges, credit unions that already offer crypto investment services will have a clear advantage. Those who do not will scrape together and quickly scrape together a poorer product while credit unions with better established cryptocurrencies will bring in members and loyalty.
Ultimately, it is about giving members more choice and control over their finances. Advances in technology have made greater customization and personalization available across all industries, and personal finance and asset management are no different. With so many new, exciting options on the market, members want a credit union that can allow them to make their own decisions.
Credit unions that are still considering cryptocurrencies should move on, but think holistically about it as part of a broader effort to increase the proportion of members who are actively engaged in their wealth management journey. The goal is to ensure that more members can retire comfortably – not become cryptomillionaires overnight. And the 91% of credit unions that do not offer crypto yet should consider adding it to their roadmap. Whether crypto regains its popularity sooner or later, credit unions will be better off offering crypto investment services.
Ben Soppitt is the founder and CEO of Unifimoney, a San Francisco-based provider of an investment and money management platform for community banks and credit unions.