CUNA Economist Warns Members of Cryptocurrency Risks

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An economist at Kona said credit unions need to educate their members about the risks of cryptocurrencies, as data shows that they are disproportionately owned by credit union members and minorities.

Ligia Vado, CUNA’s chief economist, also called for crypto regulation, while saying that credit unions should not be prevented from getting involved in the market – both long-term positions in CUNA and NAFCU.

“The credit risk of cryptocurrencies is very high because cryptocurrencies operate outside the regulatory scrutiny that applies to transactions made through banks and credit unions,” Vado said in an economic update video distributed by CUNA last week.

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“This lack of oversight also increases the risk of fraud and misconduct. It can be used for illicit trade because users operate anonymously.

Lygia Fado Lygia Fado

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

Cryptocurrencies are based on distributed ledger technology. The most popular is Blockchain, which supports Bitcoin and Ethereum.

Its value tripled to quadrupled from January to November 2021, then retreated and accelerated in April, erasing all of Bitcoin’s gains since 2021 and almost all of Ethereum’s gains on Wednesday.

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

Vado also presented the results of a 2022 National CUNA Voter Poll survey, which found that 26% of respondents said they own some form of cryptocurrency.

The CUNA 2022 Voter Survey was conducted online from January 18-23 with 2,500 registered voters. Lago said registered voters tend to be more educated and have a higher income than non-registered ones, which she says is one reason why the survey showed 26% of registered voters owned cryptocurrency, while market research showed the penetration rate was 10% in the 2021 and is expected to reach 12.8% by the end of 2022.

The survey also revealed that cryptocurrencies belong to:

  • 39% of credit union members, versus 17% of non-members;
  • 59% of registered voters are between the ages of 18 and 34, compared to 47% who are between the ages of 35 and 65 and 3% are those over 65;
  • 48% Hispanic
  • 36% black
  • 25% Asian; And the
  • 22% of eggs.

Fado said the higher ownership among Hispanics could be explained by the widespread adoption of cryptocurrencies in some Latin American countries to hedge against inflation and exchange rate volatility.

“Hispanic Americans, as well as other immigrant communities, can use cryptocurrency to send remittances more efficiently and affordably to their home countries,” she said.

“There is no clear explanation for the higher propensity of credit union members to own cryptocurrencies, other than to enjoy the benefits of cryptography, such as easier and more secure transactions, and more efficient and transparent cross-border payments and services available,” she said.

Vado did not explain why black voter ownership of cryptocurrencies had risen, but similar results were found in a survey by Ariel Investments and Charles Schwab published in April.

An Ariel Schwab survey found that only 58% of black Americans and 63% of white Americans own stock in 2022.

However, 25% of blacks own cryptocurrency, 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 believe cryptocurrency is safe, 30% of black investors and 14% of white investors believe cryptocurrency is regulated by the government — “despite the headlines about volatility.” into cryptocurrency values, platform hacks, and a lack of government regulation,” the study states.

Melody Hobson, Co-CEO and Chairman of Ariel Investments, said the combination of low stock market participation, a willingness to invest risky, and a “disturbing lack of knowledge about the fundamentals of investing is a wake-up call about the critical need for a better educated investor.” .

Melody Hobson Melody Hobson

“Many new and young investors have not experienced market volatility as we have seen over the past two years, and we have a responsibility to educate these new investors about the long-term value of investing. To build wealth and achieve financial security,” she said.

The CUNA video was released in June ahead of Federal Reserve Vice Chair Lael Brainard’s call for regulating cryptocurrency in a speech on July 8.

“While presented as a fundamental departure from traditional finance, the crypto financial system is proving to be subject to the same risks all too familiar to conventional finance,” Brainard said.

Lyle Brainard Lyle Brainard

“Far from stifling innovation, strong regulatory safeguards will enable investors and developers to build a resilient digital native financial infrastructure,” she said. “Strong regulatory safeguards will help banks, payment providers and fintech companies to improve customer experience, speed settlement, reduce costs, and enable rapid product optimization and customization,” Brainard said. “Now is the time to determine what crypto activities are permitted for regulated entities and under what restrictions so that the implications for the underlying financial system remain well contained.”

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