Greg Ohlendorf, president and CEO of First Community Bank and Trust, keeps an eye on cryptocurrency, even if it’s not all that popular among the $207 million-asset community bank’s clientele. He’s only aware of a “few handfuls” of customers of the Beecher, Ill., bank who are buying cryptocurrency, with their purchases ranging from $20 to a little more than $1,000 at a time.
“It’s certainly not wildfire, but to say no one’s doing it wouldn’t be true either,” Ohlendorf says.
He also knows that the decentralized financial product—which is largely unregulated, prone to wild price swings and fraud—isn’t going away anytime soon and suspects that he’ll hear more about it in the future.
Community bankers should be prepared to talk to customers who ask about cryptocurrency or when they suspect a customer is being defrauded. This includes those who may be confused by unregulated companies offering bank-like products related to cryptocurrency, without the protections that a community bank offers.
Here’s what community bankers should know.
What is cryptocurrency?
Cryptocurrency is virtual currency that started as a decentralized, niche digital product. Its proponents touted that it could earn customers huge profits while not being tied to one country, currency or financial institution.
As cryptocurrency gained popularity, it exploded into a multitrillion-dollar industry. It reached its highest market capitalization on Nov. 9, 2021, when it hit $1.28 trillion, with a price of $67,617.02 per bitcoin, according to cryptocurrency price tracker CoinGecko.
Crypto companies went on a marketing blitz, spending lavishly on commercials, celebrity endorsements and even the naming rights for a sports arena. FTX, a cryptocurrency company that was valued at $32 billion in January 2022, ran a Superbowl ad that year featuring comedian Larry David. Nine months later, the company filed for Chapter 11 bankruptcy.
As of Oct. 16, 2023, CoinGecko pegged the crypto market cap at $1.13 trillion.
This drop doesn’t mean cryptocurrency has disappeared or that questions about it at the community bank level will recede.
“A lot of entities that presented themselves as ‘crypto banks’ didn’t have the regulations or protections you would find with your community bank.”
—Brian Laverdure, ICBA
“Some bankers want to act like it’s something that doesn’t exist, but we need to open our eyes to all of these developments, whether you think banks are going to be involved with them or not,” Ohlendorf says.
Regulatory concerns about crypto
When it comes to regulating cryptocurrency, it’s still the “wild west,” says Brian Laverdure, senior vice president, digital assets and innovation policy for ICBA. That became apparent when multiple cryptocurrencies failed and customers were not compensated—just as gamblers aren’t when they make risky bets.
“A lot of entities that presented themselves as ‘crypto banks’ didn’t have the regulations or protections you would find with your community bank,” Laverdure says.
Crypto investment performance according to users:
performed worse than expected
did better than expected
performed as expected
What impact has crypto had on their finances?
neither hurt nor helped
helped their finances
hurt their finances
hurt their finances a lot
Source: Pew Research Centerr
To start, crypto assets are not FDIC-insured, so if a crypto company goes bankrupt, customers wait in line with every other debtor. And while regulation of cryptocurrency is an ongoing debate in Congress, most crypto assets “likely qualify as securities, not commodities,” Laverdure says. This is why ICBA’s position is that cryptocurrency should be regulated by the Securities and Exchange Commission, not by what could be perceived as the more lax Commodity Futures Trading Commission.
Conversations about regulating cryptocurrency are also ongoing at the international level.
Customers may also not be aware of how common theft is in the crypto world, Laverdure adds. In 2022 alone, hackers stole $3.8 billion in cryptocurrency, according to researchers at Chainalysis. That’s up from $3.3 billion in 2021. In October 2022 alone, $775.7 million was stolen in 32 separate attacks.
Public perception of crypto banks
Cryptocurrency’s recent scandals, bankruptcies and failures have taken their toll on the public’s perception of it. According to an April 2023 report from the Pew Research Center, 88% of Americans have heard at least a little bit about cryptocurrency. Of those people, 75% are not confident that current ways to invest in, trade or use cryptocurrencies are reliable and safe. Only 2% said they are extremely confident in crypto.
Americans 50 years and over are more skeptical, with 85% who have heard of crypto saying they’re not confident in its reliability and safety, compared with 66% of Americans under 50. Women also tend to be more skeptical, with 80% reporting they’re not confident in it, compared with 71% of men.
These statistics track with what Ohlendorf has seen among customers at First Community Bank and Trust. The few who are investing appear to be young men. Ohlendorf has also found that investments from regular crypto investors have slowed and become lower in value and volume from crypto’s financial and reputational peak.
Still, that doesn’t mean Americans are done investing in crypto. Pew found that, overall, 17% of U.S. adults have invested in, traded or used cryptocurrency, which is unchanged from similar surveys done in 2021 and 2022. Of those, 69% still have cryptocurrency today.
How can community banks educate customers about cryptocurrency?
While national and international regulations for cryptocurrency are still being hashed out, community bankers continue to play an important role in educating their customers. That’s especially needed as crypto companies continue to try to make their products look the same as those traditionally offered by banks.
For example, some crypto companies have claimed they’re FDIC insured, which is not the case, especially as they’re often regulated in another country, says Susan Sullivan, senior vice president, congressional relations for ICBA. Community bankers can help their customers see through the marketing haze—and sometimes flat-out lies.
“As trusted institutions, consumers come to community banks with questions about financial products like cryptocurrency,” she says. “We need to make it really clear to our customers that these are not regulated institutions like banks, and your money is not FDIC insured.”
First Community Bank and Trust continues to track cryptocurrency and monitor how nonregulated entities are trying to push customers into crypto investment. Ohlendorf is especially concerned about entities like PayPal giving their customers the option to put real money into their PayPal account and turn it into cryptocurrency.
It also may not be obvious to all users that they are being presented with an unregulated financial product. “PayPal, by use of colors and graphics, almost tricks you into leaving your money in PayPal and then investing it into cryptocurrency,” he says. “You can catch yourself wanting to hit the wrong button.”
Community bankers should be aware of customers who are purposefully investing in crypto and those who may accidentally do so, so that they can have conversations with those customers if they have questions or concerns.
“At this point, cryptocurrency is not going away,” says Laverdure. Community bankers are “going to get more questions about this, not less. It’s really important for community bankers to become part of the conversation.”
Cryptocurrency theft’s ripple effect
In addition to talking to customers about the near impossibility of recovering stolen cryptocurrency, Brian Laverdure, senior vice president, digital assets and innovation policy for ICBA, says that community bankers may also want to talk to their customers about what stolen cryptocurrency is used for.
According to a United Nations report, North Korea stole crypto assets valued between $630 million and more than $1 billion in 2022—more than any other year.
“It’s not just consumers that are being harmed. It’s not just your aunt or uncle or cousins throwing a few bucks into crypto every year,” he says. “There are very serious international security implications to this.”