Cryptocurrencies, Digital Assets and CUs

As with all technology driven industry and products, cryptocurrencies and digital assets are evolving at a rapid pace which is now firmly backed by the federal government. Digital and crypto product are now being offered ahead of the state and federal regulatory foundations being set.  Should credit unions take a wait and see approach?

With digital products comes opportunity and risk. On one hand, it offers new transaction and account fee revenues and is a great way to attract younger and more tech-savvy members. On the other hand, the risks require a core upgrades and additional costs with IT security system(s). With every passing day of not acting means potentially losing financial services industry market opportunity by staying out.  This article with focus on the regulatory factors for credit unions to consider now.

In March of this year, the administration issued an executive order for the creation of the Strategic Bitcoin (“BTC”, aka “digital gold”) reserve capped at 21 million coins and U.S. Digital Asset Stockpile serving as a secure account for orderly and strategic management of the United States’ other digital asset holdings.

In July, Congress passed the GENIUS Act and CLARITY Act establishing a comprehensive federal framework for regulation of cryptocurrencies and stablecoins leaving autonomy for state governments to regulate smaller issuers.

Then on August 7, the administration issued a subsequent executive order to democratize alternative assets such as cryptocurrencies, private equity and real estate.  After a 180-day study by the Securities and Exchange Commission (SEC), Labor Department and Treasury, they will update their rules to give investors access to these alternative assets without the current regulatory obstacles with Wall Street investments. 

The above actions make It evident the U.S. government (and states) have committed to cryptocurrencies (BTC, stablecoins, etc.) and other digital assets becoming a fundamental aspect of the American economy to create financial opportunities moving forward. With digital currencies means the technological potential of world-wide investment opportunities beyond American financial markets.

What is next for crypto and digital assets in the U.S.? The reality of BTC (and crypto currencies) is that it was created with block-chain technology for the fundamental purpose of deregulation and removing centralized governmental control of digital currency.

The uncertainty of pending federal and state regulations governing these crypto and digital types of assets with subsequent regulatory amendments may interfere with the existing worldwide foundation of BTC and restrict fully realizing its technological potential.

As with all types of products offered by credit unions, the NCUA and MN Dept of Commerce will shape further guidance based on state and federal regulatory provisions necessitating legal compliance within credit union policies for these crypto and digital asset related products. 

So, what does this mean for credit unions? For some credit unions, this means they are starting to offer “digital wallets” or “holding accounts” for member cryptocurrency and digital assets to transact with third-party investment vendors and investment for their retirement accounts. For others, it means doing nothing now and waiting for the applicable regulations to unfold.

What should your credit union do? Credit unions do not need to commit to this digital path now. However, boards, supervisory committees and executive staff need to start evaluating the opportunities, costs and risks presented by digital currencies on behalf of their membership now.

Please contact us for more information and compliance guidance on how you may wish to proceed.