Crypto and Digital Asset Strategies for Credit Unions
By Paul Timm, Vice President. Marketing & Strategic Development | NAFCU Services
From niche beginnings a handful of years ago, the rapid growth of digital assets, including cryptocurrencies, has surged their collective market capitalization to as high as $3 trillion. Even with the wild market fluctuations on certain coin values, digital assets are still growing in appeal and prominence. Formats such as Bitcoin are being adopted as payments, rewards, and even employee benefits. Credit unions should make time to evaluate whether their positioning in this space meets the long-term needs of their membership.
On a recent episode of our CU Lab podcast, we welcomed two of our industry’s leading authorities on crypto, Patti Wubbels and Larry Pruss from Strategic Resource Management. The 22 minute episode is full of good information for credit unions all across the technological spectrum, and well worth a listen. Four main points jumped out at me:
- Get familiar with regulatory priorities. A March 2022 executive order offers a helpful roadmap of this administration’s priorities and concerns where digital assets are concerned, and directs agencies to work in tandem with the balance of growth and safety in mind. “The regulation that's going to come will be geared towards consumer protection, which will be good for the industry: we'll see less fraud and less scams,” Pruss said. “They’re talking about innovation, but also balancing that with risk.”
- Take a formal approach to crypto opportunities. Digital assets are still a fast-changing space but the concepts and players are established enough that they can and should be held to a formal RFP process. Whether you’re taking a first move into crypto custody or trading, or looking to expand into emerging digital assets, seek out at least two or three comparable partners and put them through the same rigid checks that you would a partner for a conventional opportunity. In other words, don’t let the tail wag the dog. “Choose a use case and find a vendor that’s appropriate, not the other way around,” Wubbels said.
- Demographics will drive crypto demand. SRM pointed to two important factors that will boost demand for crypto assets. The first is youth: young consumers today are as accustomed to hearing about cryptocurrency as Millennials were to hearing about credit cards. As they become members, they will expect their credit union to understand their needs. The second demographic factor is the ongoing wealth transfer of the large Baby Boomer population to future generations. Inheritors will seek a wider range of investment opportunities than their parents and grandparents, and crypto will be on that menu. “If you're not serving them [inheritors] with the types of financial products that they need, you're going to miss that opportunity,” Pruss said.
- Crypto is lining up to be the next rewards program innovation. Even before the dual blows of pandemic restrictions and inflation, travel-based and cash-back rewards programs had lost that shiny-new appeal. Loyalty and rewards programs geared around cryptocurrency offer a fresh angle, and one where members can be excited about the future value of the reward they’re building toward. “That’s an interesting space right now,” Wubbels said. “I think people are willing to take [crypto] and then see where it goes.”
To hear the entire conversation about the implications and opportunities crypto creates for credit unions, listen to the complete episode. There’s so much more to talk about in the world of digital assets. We’ll be back often with more questions, insights, and dialogue on the matter.