Although the digital asset market size has increased exponentially over the past 10 years, the market value of cryptos has fluctuated widely recently. Since the introduction of bitcoin, the number of cryptocurrencies available in the market has exploded.
Currently there are more than 10,000 active cryptos. After a pandemic-induced market expansion with total market value increasing threefold to $2.2 trillion in 2021 from $763 billion in 2020, the market has plummeted to a current value of $986 billion, a 55% decline (“Number and value of cryptocurrencies”).
A major credit and liquidity crisis recently began, with the value of bitcoin and other cryptocurrencies suddenly plunging. Two major cryptocurrency platforms, Celsius Network and Binance, restricted withdrawals, crypto swaps, and account transfers.
The value of bitcoin and ethereum, the two most highly valued cryptocurrencies, plummeted to their lowest levels in three years with respective value losses of 66% and 75% from their all-time-high prices. Stablecoins such as tether broke its peg to the U.S. dollar, and terra and luna have unraveled with luna’s token price falling from $116 in April 2022 to essentially zero.
This cycle bust has resulted in 46,000 consumers reporting collective losses of at least $1 billion in crypto since January 2021.
As evidenced by current market conditions, cryptos remain subject to extreme price volatility and uncertainty. It’s not surprising that cryptos have not been widely adopted as a means of payment in the U.S.
The total market value of cryptocurrencies in 2020 was less than 1% of the value of transactions paid with credit and with debit cards.
Consumer interest
Rising consumer acceptance for digital finance has been underway for the past decade. In the U.S., cash use has fallen from 40% of transactions in 2012 to 19% in 2020, a trend accelerated by the pandemic.
The CUNA 2022 Voter Survey reveals that most Americans (76%) have used online banking to pay a bill, check account balances, and obtain transaction information. The survey also gauged the extent to which use of crypto aligns with consumer trends toward noncash payments or online finance.
The CUNA survey is conducted on a sample of registered voters, who have higher educational attainment and income than unregistered voters.
Twenty-six percent of CUNA 2022 Voter Survey respondents own cryptocurrency, indicating cryptocurrency adoption is still in the early stage and significantly immature compared with consumers’ adoption of digital finance or other forms of noncash payment.
Plus, a higher proportion of credit union members own cryptocurrencies than nonmembers: 39% of credit union members own crypto compared with 17% of nonmembers.
Despite a relatively low penetration of crypto, survey responses show significant differences in consumer appetite for crypto by age, population density, and race/ethnicity. Younger consumers are the most likely to own cryptocurrency: 59% of members ages 18 to 34 own crypto, compared to 47% of those ages 35 to 64, and 3% of members ages 65 and older.
Differences also exist among racial groups. Forty-eight percent of Hispanic members own crypto, followed by African Americans (34%), Asians (25%), and whites (22%).
The higher propensity of Hispanic Americans to own crypto might be explained by the fact that cryptocurrency is more widely adopted in certain Latin American countries to hedge against inflation and exchange rate volatility. Also, Hispanic Americans might use cryptocurrency to send remittances more efficiently and affordably to their countries of origin.
When asked why they own crypto, 49% of consumers do so as an investment, 29% use it to make purchases, and less than 25% of consumers own crypto for both. However, credit union members are three times more likely than nonmembers to use crypto to make payments (39% vs. 13%).
Nearly one-third (32%) of men own cryptocurrency versus 17% of women.
Research from Cornerstone Advisors indicates 25% of credit unions plan to provide access to cryptocurrency investing and trading by the end of 2023 or later.
Crypto capabilities are something members, especially younger generations, will demand from their financial service provider. If credit unions don’t provide these capabilities, these members may go elsewhere.
Credit unions must build out their financial counseling resources for members around crypto and educate members about the risks and opportunities.
LIGIA VADOis a senior economist at Credit Union National Association. Contact her at 608-609-0678 or at lvado@cuna.coop.
This article appeared in the Fall 2022 issue of Credit Union Magazine. Subscribe here.
Crypto's Regulatory Framework
Federal- and state-level initiatives are currently underway to develop a regulatory framework for digital assets. These proposals include delineations of the evolving role of incumbent financial institutions in the digital assets market.
On March 9, President Joe Biden issued an executive order on “ensuring responsible development of digital assets” in which he called for a comprehensive, whole-of-
government review of these assets. He tasked federal agencies with evaluating their benefits and risks, and developing policy regulations to address them.
Part of this executive order called on the Federal Reserve System to continue its research into central bank digital currencies (CBDCs). As a result, the Fed issued a white paper and solicited a public discussion with relevant parties and stakeholders.
CUNA is engaged with the Federal Reserve, and submitted comments regarding CBDC design, risks, and policy considerations.
States are pursuing regulation through a variety of avenues, including creating new depository institutions, amending the uniform commercial code to reflect digital asset considerations, rewriting money transmitter laws, authorizing new authorities for financial institutions to work with digital currencies, and others. There are currently around 78 state bills pending, and we don’t expect the pace to slow any time soon.
NCUA issued a request for information and comment last year on digital assets and related technologies. CUNA asked for credit union authority to offer consumers an entry point to purchase and use digital assets, and for continued collaboration with other prudential regulators to ensure parity among financial institutions.
NCUA has since issued two letters of guidance for credit unions on digital assets. In December 2021, it published a letter stating credit unions can “establish relationships with third-party providers that offer digital asset services to the FICU’s members provided certain conditions are met.”
In May, the agency issued a letter clarifying expectations for credit unions contemplating the use of new or emerging distributed ledger technologies.
MADISON ROSEis director of advocacy and counsel for payments and technology at Credit Union National Association. Contact her at 202-508-6706 or at mrose@cuna.coop.
Credit Union Magazine’s Spring 2023 issue features the 2023 Credit Union Heroes and examines CUNA-League advocacy priorities, board leadership, the impact of financial well-being efforts, fee-related compliance issues, predictions for the year ahead, and more.
