Converting a threat into an opportunity
It’s become impossible to argue that cryptocurrency remains a fringe phenomenon. A recent Visa study shows that a third of American households own crypto - usually Bitcoin, but increasingly newer assets such as Ethereum, Solana, and Cardano as well. Although most have focused on crypto’s value as an investment vehicle, opportunities to use cryptocurrency stablecoins like USDC and USDT as a means of exchange are rapidly expanding. PayPal, Venmo, and Square now enable Bitcoin in their digital wallets, Flexa is allowing for crypto to be spent at point of sale, and Visa and Mastercard are actively working on stablecoin-based payment solutions.
With a combined market capitalization approaching $2 trillion (40% in Bitcoin alone), financial institutions need to take notice, given the potential long-term impact on their core business. Multiple credit card issuers have introduced crypto-based rewards programs, and leading processors have struck partnerships with crypto infrastructure providers to enable Bitcoin trading. Regulators have solicited market input to help them assess the best approach to establishing guardrails for such activities. Even the Federal Reserve has joined the fray, collaborating with MIT to explore the potential for a central bank-issued digital currency. The Fed is also seeking comments about the creation of a CBDC, though it stated that it has no plans to act “without clear support” from the White House and Congress, “ideally in the form of a specific authorizing law.”
Interest isn’t confined to the banking sector, either. Forward-thinking companies including Amazon, Apple, and Walmart have open job requisitions for crypto experts, signaling their likely involvement in the space.
The good news is that most Americans express interest in conducting their crypto activities through their financial institution. CUESolutions provider SRM has been advising its bank and credit union clients for some time to stay up to speed on crypto’s evolution and to develop a strategy so they are ready to act once the regulatory environment and market conditions warrant.
Toward this end, this report provides a primer of the key terms and concepts underpinning crypto and decentralized finance (DeFi), an overview of their value proposition for financial institutions, recent developments in the regulatory landscape, and practical examples of crypto-enabled banking services.