DULLES, Va.—As credit unions examine their memberships to determine the level of cryptocurrency intertest, just which members are most likely to be involved in crypto?
Not surprisingly, one expert pointed, out, the answer is younger consumers and minorities. But the reason may surprise some CUs.
Terri Bradford, senior payment specialist at the Federal Reserve Bank of Kansas City, explained the interest from minorities is due to those with lower net worth looking for a way to bridge the wealth gap.
Minorites, said Bradford during NCUA’s DEI & ACCESS Summit, are “trying to level the playing field.”
As CUToday.info has reported, many credit unions that are offering a crypto service to buy, sell and hold the digital money, have done so after first examining their members’ transactions and seeing funds flowing out and into crypto investments. But they may not know who is really investing if those funds weren’t with the credit union in the first place.
Bradford told attendees at the Summit, which was held in person at the Dulles Airport Hilton and virtually, that 2021 Pew research reveals Black consumers are holding 18% of the crypto dollars, Hispanic consumers 21%, and White consumers 13%.
Seems Counterintuitive, But…
“That may seem kind of counterintuitive,” said Bradford. “Why in the world are minorities holding the most crypto?”
But after doing more research and hearing from consumers, Bradford understands the Pew findings.
“One reason is glaringly obvious—it's the wealth gap,” Bradford explained.
She noted that a big chunk of wealth is generated from home ownership, pointing out that minorities are less likely to own a home than White Americans.
“So, for some, cryptocurrency is viewed as a way of making up this huge gap because you're probably not going to do it through traditional avenues,” she said.
Bradford also cited a Harris Poll that found Black consumers were expecting more that a 20% return on their cryptocurrency investments.
One Lasting Example
“And, among many minorities there is a distrust of traditional financial institutions,” she said, citing as one example, Freedman’s Savings Bank.
Freedman's Savings Bank was a private savings bank chartered by the Congress in 1865 to collect deposits from the newly emancipated communities. The bank grew quickly, and at the height of its success in 1872 held assets worth more than $3.7 million. However, the rapid development of the bank was largely driven by false claims and was coupled with mismanagement and fraud, and failed in 1874, destroying the savings of many African-Americans.
Many Hispanics also distrust financial institutions.
“If you come from a country where the financial system is corrupt or unstable, that may translate to what your perceptions are about the system here in the United States,” said Bradford.
“The younger demographic is viewing this crypto differently,” she continued. “They’re looking at the Web 3 platform as an opportunity for innovation in ways that we haven't yet experienced. And some of that is NFTs (non-fungible tokens)…These folks are digital natives. They like gamification. And crypto just kind of aligns with all that.”
Crypto Risk
Bradford turned her presentation to the topic of crypto risk.
“What is glaringly obvious, after what we've been through over the past several months, is cryptocurrency is highly speculative, volatile, unregulated and backed by absolutely nothing,” she said. “If you were early into bitcoin, you are happy. But if you’ve been chasing bitcoin on its way up, well, you’re not feeling good right now.
Another issue, according to Bradford, is decentralization.
“What if you forget your (crypto) access password or lose your encryption key?” she said. “If you're running away from the Freedman's Savings Bank situation, well, you just recreated that. You've got Freedman’s 2.0. With some of these exchanges, and some of the potential for losing what is yours…The really bad thing about all this is that the folks who can least afford to lose money are the ones who will be hurt the most (if their cryptocurrency investment loses most or all of its value). At present there aren't real guardrails around this.”
Encouragement from NCUA Board
Scott Hunt, director of NCUA’s Office of National Examination, told attendees the agency’s board wants credit unions to “explore innovation. They want credit unions to succeed with your memberships. But, of course, we always want any adoption of new technology to be done in a safe, sound and responsible manner.”