made headlines — both positive and negative — for the value the marketplace has placed upon them. It’s important to remember that volatility is part of any emerging market and has been a part of the crypto space since its inception. However, the general trend has consistently been upward. More established crypto assets have gained additional certainty from a regulatory perspective, making themmore attractive offerings as banks begin to explore this space. The volatility in the crypto space has caused some to question if consumers should participate, but this creates even more demand for banks to serve as trusted partners to guide consumers to safer, more established options like Bitcoin. Why Should Your Bank Consider Entering the Cryptocurrency Marketplace? In short: Banks should care about cryptocurrencies because many of their customers are showing interest and competitors are getting there first. Capitalizing on this trend could ensure that customers engage in the space safely and deepen the connection with their institution. According to Visa, 32% of crypto-aware consumers own cryptocurrency, with 21% being active owners who have transferred crypto or used it in a transaction. Despite the difficulties banks have implementing digital currency services, there’s no reason they can’t dip their toes in the water. A recent Cornerstone Advisors survey found that 60% of crypto owners would use their bank to invest in cryptocurrencies, and another 32% might. Customers are interested in digital assets, and banks can use this interest to further their position at the center of their financial lives. As with previous innovations like digital banking, the capacity to control the customer experience and truly drive strategy depends upon how quickly a bank adopts it. Financial institutions have an opportunity to maintain their role as financial advisors regarding crypto. Many consumers want to participate but need a trusted partner, such as their bank, to better understand how. In addition to offering education, allowing customers to try their hand in the crypto space could generate additional revenue. What Do the Regulators Say About Crypto Assets? As the space evolves, regulations governing digital currencies are updated on an ongoing basis. Financial institutions should stay up to date on regulations and instructions from federal regulators regarding decentralized cryptocurrencies. Recent guidance from the Federal Reserve, FDIC and OCC has focused on the need for greater clarity, with tentative guidance around: • Crypto-asset custody • Facilitation of customer purchases and sales of crypto assets • Loans collateralized by crypto assets • Activities involving payments • Activities that may result in crypto asset holding on an institution’s balance sheet Continued on page 28 Customers are interested in digital assets, and banks can use this interest to further their position at the center of their financial lives. August 2022 | 27
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