Cryptocurrency remains an industry that boasts significant adoption and increasing innovation over the last decade. What remains unclear for many is how their financial institution (FI) can not only protect themselves but benefit from cryptocurrency growth and offerings.
Strategic Resource Management (SRM), an advisory group for financial services, posted their 2022 Cryptocurrency report (here), where they highlight that over three quarters of Americans would prefer to conduct their crypto activities through a financial institution. This is great news for financial institutions, as it means they still have a role to play, but the opportunity is time sensitive.
More and more customer funds are being removed from the traditional financial services industry and deployed to alternatives such as Decentralized Finance (DeFi). As of February 24th, 2022 total value locked in DeFi Protocols is up to $68.9 billion dollars according to DeFi Pulse.
Value in DeFi protocols would more than likely have been held as deposits by financial institutions.The fact these funds are no longer available begins to limit the amount of funding available for financial institutions to lend on, thus decreasing the availability of credit in the traditional financial system and increasing reliance in non-traditional markets.
Cryptocurrency participation gives financial institutions access to some of these clients who engage primarily in non-traditional markets. Consider this as a potential solution to the problem many community financial institutions have with an aging customer base and difficulty acquiring new customers or members. SRM highlighted a Morning Consult study that found 37% of underbanked individuals participate in the crypto space, compared to only 10% of fully banked
Americans. By beginning to offer services that support cryptocurrency institutions can target customers that may otherwise not be attainable.
There are a variety of opportunities for financial institutions to begin participating in the cryptocurrency market. Financial institutions around the country and the world already participate in custodial services, lending, trading, and wallet integration. For institutions that are just entering the space and trying to gain some exposure there are lower burden entry points such as industry adjacent participants. Take for example hardware companies, software companies, or consulting firms who offer goods or services that support cryptocurrency market participation or expansion. Offering services to these participants allows your institution to become further acquainted with the industry and time to develop more technically sophisticated offerings.
Our webinar on March 15th, 2022, “Banking Crypto: What Bankers Need To Know” is hosted by industry experts Ryan McInerny, Senior Compliance Manager at RiskScout and Larry Pruss, Senior Vice President at SRM. Register to learn how your institution can participate in the crypto space.