CUNA Economist: Warn Members About Cryptocurrency Risk

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A CUNA economist said that credit unions must advise their members about the risks of cryptocurrencies, as data show that they are disproportionately owned by credit union members and minorities.

CUNA senior economist Ligia Vado also called for regulation of cryptocurrencies, while saying that credit unions should not be barred from engaging in the market – both long-term positions for CUNA and NAFCU.

“The credit risk for cryptocurrencies is very high because cryptocurrencies operate outside the regulatory scrutiny of transactions that take place through banks and credit unions,” Vado said in a financial update video distributed by CUNA last week.

“This lack of oversight also increases the risk of fraud and misconduct. They can be used for illegal trade because users operate anonymously,” she said.

Ligia Vado

Vado said cryptocurrencies are in crisis as investors have lost billions of dollars.

Cryptocurrencies depend on distributed ledger technology. The most common is Blockchain, which supports Bitcoin and Ethereum.

Their values ​​rose three to four times from January to November 2021, then took a hit that accelerated in April, wiping out all Bitcoin gains since 2021 and almost all Ethereums by Wednesday.

“Cryptocurrencies are subject to extreme volatility,” she said. “It is not surprising that cryptocurrencies have not been widely used as a means of payment in the United States.”

Vado also presented results from CUNA’s 2022 National Voters Poll which found that 26% of respondents said they owned some form of cryptocurrency.

2022 CUNA Voter’s Survey was conducted online 18-23. January among 2,500 registered voters. Lago said that registered voters tend to be more educated and have a higher income than those who are not registered, which she said is one of the reasons why the poll showed that 26% of registered voters owned cryptocurrencies, while market research showed that penetration was 10% in 2021. and expected to reach 12.8% by the end of 2022.

The survey also found that cryptocurrencies were owned by:

• 39% of credit union members, versus 17% of non-members;
• 59% of registered voters aged 18 to 34 years, compared with 47% of those aged 35 to 65 and 3% of those over 65 years;
• 48% of Hispanics;
• 36% of blacks;
• 25% of Asians; and
• 22% of whites.

Vado said that higher ownership of Latin Americans can be explained by the widespread use of cryptocurrencies in some Latin American countries to hedge against inflation and exchange rate volatility.

“Latin Americans, as well as other migrant communities, can use cryptocurrencies to send money transfers more efficiently and more cheaply to their country of origin,” she said.

“There is no clear explanation for credit union members’ higher propensity to own crypto, other than taking advantage of crypto benefits, such as simpler and more secure transactions, more efficient, seamless cross-border payments and services available 24/7,” she said. .

Vado gave no reason for black voters to have a higher stake in cryptocurrencies, but similar findings were found in a survey by Ariel Investments and Charles Schwab published in April.

The Ariel-Schwab survey found that only 58% of black Americans and 63% of white Americans owned shares in 2022.

However, 25% owned black cryptocurrencies, compared to only 15% of white investors. Among investors under the age of 40, ownership was 38% among blacks and 29% among whites.

The survey found that 33% of black investors and 18% of white investors thought cryptocurrencies were safe, and 30% of black investors and 14% of white investors thought cryptocurrencies were regulated by the government – “despite headline-grabbing news about cryptocurrency volatility, platform hack and lack of government regulation, “the study said.

Mellody Hobson, co-CEO and president of Ariel Investments, said the combination of low stock market participation, appetite for risky investments and an “alarming lack of knowledge of basic investment principles is a red flag about the critical need for greater investor education.”

Mellody Hobson

“Many new and younger investors have never experienced market volatility as we have seen in the last couple of years, and we have a responsibility to educate these new investors about the value of long-term investments to build wealth and achieve financial security,” she said.

CUNA’s video published in June preceded the call for the regulation of cryptocurrencies by Fed Deputy Lael Brainard in a speech on July 8.

“Although it is pointed out as a fundamental breach of traditional finance, it turns out that the cryptocurrency system is exposed to the same risks that are far too familiar from traditional finance,” Brainard said.

Lael Brainard

“Far from stifling innovation, strong regulatory railings will help investors and developers build a robust digital native financial infrastructure,” she said. “Strong regulatory railings will help banks, payment providers and financial technology companies (fintechs) improve the customer experience, make settlements faster, reduce costs and allow for rapid product improvement and customization,” said Brainard. “This is the right time to determine which cryptocurrencies are allowed for regulated entities and under what constraints, so that spillovers to the core financial system remain well contained.”