Pub. 12 2021 Issue 4

Pub. 12 2021 I Issue 4 Winter 13 West Virginia Banker need for intermediaries or the need to convert to foreign currencies. • Growth – cryptocurrency has been growing in popularity since it was introduced and is becoming more widely used for both transactions and as an investment tool. This has the value of certain cryptocurrencies (particularly Bitcoin) to increase in price substantially since its introduction. • Unregulated currency – holding an anonymous currency not bound by political changes can be both positive and negative. While anonymity limits the risk of identity theft, it also is inviting to criminal enterprises. Cons: • Volatility – the prices of cryptocurrency have been subject to extreme volatility. While the price of the most popular cryptocurrencies has largely trended upward since its introduction, the extreme volatility makes it riskier than many traditional investments. • No FDIC Insurance – unlike cash held in depository institutions, the FDIC does not insure money invested in cryptocurrencies. However, this is not much different from other traditional investments like stocks and bonds. Now that I have provided an introduction to cryptocurrencies and discussed the pros and cons to users/ holders of cryptocurrencies, I would like to discuss ways that financial institutions can take advantage and provide services to users of cryptocurrencies. Financial institutions have opportunities to profit from cryptocurrencies by providing the following services: • Processing payments • Providing an exchange for customers to convert cash to cryptocurrencies • Facilitating international transfers • Opening new accounts by partnering with crypto companies • Providing loans In addition, some financial institutions have begun accepting cryptocurrency as collateral for loans. However, due to the volatility involved, it is necessary for financial institutions accepting cryptocurrency as collateral to have adequate loan-to-value ratios in place to protect them in the event of value decreases. In conclusion, there is still plenty to be learned before financial institutions (particularly community banks) determine whether it is feasible to begin offering crypto services. However, there is little doubt the use of cryptocurrency will continue to grow. It is important for leaders of financial institutions to get ahead of the curve in learning how cryptocurrency might impact their operations in the future and researching guidance released by regulatory bodies. It is likely that cryptocurrency technology will play a prominent role in the future of financial institutions.  Patrick McGraw, CPA, is a Senior Manager with Baker Tilly, focusing on internal & external audit and consulting. He can be reached at patrick.mcgraw@actcpas.com or 304-225-6000. It is important for leaders of financial institutions to get ahead of the curve in learning how cryptocurrency might impact their operations in the future and researching guidance released by regulatory bodies.