New safe havens: TradFi vs trillion dollar tech
The latest from the Fed is that inflation is mostly under control, unemployment is near historic lows, and there is no immediate rush to lower the federal funds rate. It is true that the current annualized inflation rate of 3.5% is much improved from the 9% just two years ago. Still, the impact to savings account balances, consumer spending power, and overall cost of living remains significant.
The relentless devaluation of the USD, alongside threats of a total decoupling of the petrodollar, have heightened the need for innovative savings and investment strategies. Credit union leaders and executives face difficult conversations about their (in)ability to protect their members’ assets. Accelerating the need for those conversations is the availability and legitimacy of the recently approved Bitcoin (BTC) and Ethereum (ETH) exchange-traded funds (ETFs), which have provided powerful inflation hedges for millions of retail investors, and direct experience with the upsides of ‘streaming money’.
With or without ETFs, it’s counterintuitive for community financial institutions to embrace technologies that allow our members’ assets to flee our local economies into the hands of Blackrock, Ark, and Fidelity. (This obviously feels wrong on multiple levels.) But market caps speak loudly and cryptos’ market cap exceeds the sum total of assets held by all credit unions in the U.S. The necessity to integrate digital assets into traditional finance models becomes more apparent each day. Courageous and decisive responses from community finance leaders will prove pivotal not only for hedging inflation but also for capturing growth in the burgeoning digital economy.
Bridging traditional and digital finance
The approval of cryptocurrency ETFs in the U.S. has been fraught with regulatory scrutiny and investor anticipation. The first Bitcoin ETF, a futures-based product, was launched in late 2021, marking a historic moment for cryptocurrency integration into mainstream investment portfolios. These ETFs are designed to mirror the price movements of Bitcoin, offering investors a safe and regulated means of engaging with digital currencies. Ethereum ETFs followed, expanding the landscape with a focus on a cryptocurrency known for its smart contract capabilities, which underpin a broad range of decentralized applications.
These developments are significant because they offer retail investors (and your credit union’s members) a familiar investment structure—like that used for commodities or index funds—but for the highly volatile cryptocurrency market. The addition of Ethereum ETFs not only diversifies the available options but also taps into many sectors of decentralized finance (DeFi), which is reshaping investments, safe storage of wealth, contracts, and many other financial services.
The role of credit unions in asset preservation
Credit unions have long been pivotal in helping members manage and grow their assets securely. As member-owned cooperatives, you have a unique mandate to protect your members’ interests, offer personalized financial services, higher returns on savings account balances, and lower loan rates. In times of increasing economic uncertainty and transformative technologies, credit unions need to lead by educating members about the opportunities and risks of the decentralized financial world and offering stable, reliable, and relevant financial services.
St. Cloud Financial Credit Union has taken a proactive approach by integrating digital assets directly into its modern core, setting a benchmark in the industry for digital asset management and core-centricity. This initiative not only enhances its offerings but also strengthens its position as a leader in financial innovation. St. Cloud’s executive team was honored at the most recent Corelation conference, receiving the ‘Coolness of Corelation’ award for their innovative approach to bridging TradFi with DeFi.
With the introduction of savings and investment options like Bitcoin and Ethereum, credit unions have a new tool to help members diversify their investment portfolios while maintaining a level of protection against bad actors in the crypto markets. This not only helps in preserving the value of their assets in times of inflation and currency devaluation but also provides exposure to the growth potential of digital assets. As trusted stewards of member and community assets, no entities are better positioned than credit unions to educate members about the risks and benefits of cryptocurrency investments.
Transactions reimagined
The shift towards blockchain-based financial systems and the reality of streaming money are quickly redefining future financial transactions. Several major players are diving in head first, including Citi and JPMorgan, both testing a system with Visa and Mastercard to tokenize their assets. These technologies promise to enhance operational efficiency and financial transparency, presenting credit unions with unprecedented opportunities to optimize liquidity management and expand member services ahead of mass adoption.
The strategic incorporation of cryptocurrency and advanced financial technologies into credit union operations is essential for navigating the challenges of today’s economic environment. These innovations are critical not only for asset protection but also for ensuring credit unions’ competitive edge in a digital-centric future. By staying at the forefront of these trends, credit unions can safeguard and increase member assets even in volatile markets.
If protecting member assets in a bifurcating financial services market remains a strategic priority, we’re ready to help create and implement a sound strategy. Let’s talk.
