The time is ripe for financial institutions to explore what cryptocurrency offerings their customers want.
That’s despite 2022’s bear market, Jeff Billingham, director of strategic initiatives at blockchain intelligence platform Chainalysis, told PYMNTS.
“There’s a sort of flight to quality whenever we have these crypto winters or downturns, right?” he said.
Over the last few years, cryptocurrency as an asset class has progressively entered the mainstream and enjoyed a corresponding inflow of institutional dollars.
“Each time there’s a pullback in the market and a lot of the ‘shiny objects’ that are maybe built on quicksand, they’re no longer top of mind for people, I find it’s an opportunity for financial institutions to think about, well, what’s real in this space?” Billingham said, adding that it is important for financial actors to ask themselves, “What are our customers, our best customers, actually asking for?”
He sees 2023 as offering traditional financial businesses a “nice opportunity to take a sober look” at the real opportunities existing across the crypto landscape.
It may seem obvious, but it’s critical for financial institutions interested in moving into cryptocurrency to start by learning as much as possible about the industry.
“There’s a lot that goes into just getting comfortable with the industry itself,” Billingham said. “It first comes down to education. There are a lot of institutions out there with teams that are led by experts in their field, but they don’t understand the vocabulary of cryptocurrency, and they are not too familiar with the benefits of this technology that could help them in their roles. It requires the bank or institution to train and level up their own leaders, from compliance to sanctions, about the opportunities the cryptocurrency industry presents.”
The underlying technical architecture of cryptocurrencies, the blockchain, inherently offers valuable code-based tools to help financial institutions gain transparency into market risk, boost know your customer (KYC) and anti-money laundering (AML) controls, and help prevent financial crimes and fraud with its decentralized, immutable ledger for transactional record keeping.
In order to properly integrate these capabilities into their offerings, organizations must be familiar with and comfortable using crypto’s industry specific vocabulary.
“It’s important for businesses to really sound like experts, both to be able to communicate effectively back to their committees and regulatory partners and to develop productive working relationships with cryptocurrency businesses,” Billingham said.
If financial institutions don’t have a strong grasp of the language, they won’t be able to understand, implement, or leverage the sector’s benefits, much less protect themselves against its inherent risks, he added.
Crypto industry knowledge and fluency is critical for complying with crypto industry regulations.
“There are still absolutely best practices that businesses can adhere to,” Billingham told PYMNTS. “They can go above and beyond what might ultimately be required as a show of good faith.
“Those financial institutions that already understand the industry and its regulatory environment are best positioned to capitalize on building a new business based on those requirements,” he added.
The first step for financial institutions interested in the crypto sector is to begin supporting and interacting with cryptocurrency businesses the same way they would when considering any other offering — namely by asking how integrating cryptocurrency into their business strategy can help their customers while also driving revenue.
“There’s plenty to build around cryptocurrencies as just another part of an overall portfolio for investors,” Billingham said. “I think the opportunity for banks is to listen to what your best customers are saying, what they are really asking for when it comes to cryptocurrencies.”
This means allowing customers to transact with cryptocurrency businesses that fit their individual risk appetite.
Billingham sees cryptocurrency integration as an iterative path forward, enabling financial institutions to evaluate market opportunities while addressing regulatory and compliance requirements in parallel so financial institutions and their customers can enter the cryptocurrency market in a safe, transparent and regulated manner.
“Crypto integration offers banks an opportunity to save on the technical debt that’s been built up across settlements and payments,” he said, adding that the opportunity on the technology side for financial institutions is “absolutely around” getting faster settlement times and providing on-and-off ramps to a digital world for the traditional financial system.
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