With the rapid fall in the price of Bitcoin, the conversation regarding Bitcoin and other cryptocurrencies has changed dramatically. Where does that leave credit unions that were considering adding crypto to their offerings? Here we will explore this question and propose a strategy that we believe is the right one for credit unions pursuing the cause of responsible innovation.
Impassioned advocacy has given way to muted uncertainty – there aren’t many laser eyes on Twitter anymore. The initial excitement of the potential to offer crypto – or more specifically Bitcoin, which NYDIG led with, through a credit union, has rightly given way to uncertainty as to the place of crypto in banking. Previously, many industry leaders were optimistic about this innovative new asset, the recent drop in Bitcoin and other cryptocurrencies left many people in crypto investing.
This drop comes just as many credit unions were starting to think about offering crypto investing services. Cornerstone Advisors’ latest report, “What’s Going On in Banking 2022: Rebounding From the Revenue Recession,” found that 9% of credit union executives plan to offer cryptocurrency investing services in 2022. makes sense given the interest many consumers have in using their financial institution to access crypto – Cornerstone found that 60% of crypto owners would prefer using their financial institution to invest in cryptocurrencies.
BAI, a non-profit organization that conducts research for the financial services industry, found in its 2022 Banking Outlook report that more than half of Gen Z and Millennials have invested directly in cryptocurrencies. currencies or in crypto-exposed funds.
“We are sitting in a gap between the major battle-tested crypto assets in the market and new emerging blockchains. Bitcoin and Ethereum have clear user bases, from libertarians to dapp aficionados,” said Max Osbon, Chief Investment Officer of Unifimoney. “Alternate diapers have grown in importance extremely quickly, probably too quickly for their own good. The growth in their number of users and their added value to the ecosystem has been much slower. Market values are at risk when products are not used or when the user base does not grow very quickly. As the Fed pulls in liquidity, alternative cryptos are going to be hit hard, as they have been.
However, as the crypto market plunges, credit union executives are wondering if they should even consider offering crypto services. No credit union would advocate gambling as a path to long-term wealth creation, so why offer Bitcoin?
Crypto has always been a risky and volatile asset, but now, more than ever, financial institutions are skeptical of the value of crypto. So, should credit union professionals ditch their crypto investing 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 this is never the case. Risky and volatile assets are exactly that, whether it’s tulips in the 17th century or Bitcoin today. This does not mean that alternative assets have no role in investment strategies – they only have a role in a properly diversified and risk-appropriate long-term investment portfolio.
When considering a long-term approach to protecting and increasing wealth diversification, it is of crucial importance. This includes time as a diversifier to negate market timing risks, contributions to dollar cost averaging over time, as well as asset class and within asset class diversification.
One of the challenges for investors looking to invest in crypto through their credit union is that many of the early adopters have set up investment platforms that only provide access to one or a handful of cryptos. -currencies – for example, Bitcoin and possibly Bitcoin and Ethereum. Clearly offering a single asset class and a single example of that asset class would not be considered by a reasonable 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 indeed and it is likely that crypto will rebound eventually. In fact, this is not Bitcoin’s first crash. Crypto dropped dramatically in 2018, and many people at the time claimed that crypto was “dead”. The price has stayed low for a while until it rebounds in 2021. It is almost impossible to say exactly when the crypto will hit its previous highs, or if it will at all, but it is likely that it will be. the case. For investors who haven’t started investing in crypto, this might represent a good time to start – but as a small part of an overall risk-adjusted long-term wealth management strategy.
Crypto as part of a Digital Wealth Management Solution: A Simple Way to Boost Member Engagement, Acquisition and Retention
While credit union leaders may differ widely in their interest in and acceptance of crypto and wealth management services, many are noticing the massive growth in deposits, leaving their members to use third-party investment apps like Coinbase and Robinhood. This impact on the very core of their business is grabbing everyone’s attention and underscoring the need to think about how to better meet the needs of members who are not catered for today but are served by apps. third-party investment.
What is clear is that regardless of how executives think consumers vote with their wallets, if their needs are not met by their financial institution, they will turn to a fintech disruptor instead.
When credit unions don’t offer an easy way to invest in crypto, their members will be go to an exchange. If their credit union’s digital platform doesn’t offer access to stocks and ETFs, they will be move towards a fintech that welcomes all investments. These members are not limited to Gen Z and Millennials – one bank reported that more than half of its traditional registered investment adviser clients have also invested directly using self-directed third-party investment apps. . Financial institutions offering traditional wealth advisory services are also realizing the need to serve younger, less affluent clients before they become wealthy enough for traditional advisors, as it is likely that by the time they will be rich enough, they will already be working with someone else who was there when they were younger and less wealthy. These younger members will be more likely to stay in these businesses as their assets grow, removing a very wealthy future member from the credit union movement.
Keeping younger members in the credit union family requires forward-thinking, 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 engagement from an early age. Giving the access members want today keeps them more engaged in the short term and lays the foundation for growth toward future wealth within your organization.
Credit unions should not cancel crypto services, but offer them as part of a digital wealth management solution. There are three times more customers on Robinhood than on Coinbase. In addition to providing greater choice of investments and the ability to diversify a portfolio by offering both traditional and alternative assets, you maximize the opportunity to engage with these clients.
Even though the demand for crypto isn’t what it was weeks ago, that demand is still there and the need for a long-term wealth management approach is never better emphasized when the market is falling. Even better, when crypto reappears, credit unions that already offer crypto investment services will have a clear advantage. Those who won’t wade and hastily put together inferior product while credit unions with more established crypto offerings gouge members and loyalty.
Ultimately, it’s about giving members more options and control over their finances. Advancements in technology have made greater personalization available across industries, and personal finance and wealth management are no different. With so many exciting new options on the market, members want a credit union that can empower them to make their own decisions.
Credit unions that are still considering crypto offerings should move forward, but think about it holistically as part of a larger 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 crypto millionaires overnight. And the 91% of credit unions that don’t yet offer crypto should consider adding it to their roadmap. Whether crypto regains popularity sooner or later, credit unions will have an interest in providing crypto investment services.
Ben Soppitt is founder and CEO of Unifimoney, a San Francisco-based provider of an investment and fund management platform for community banks and credit unions.