How institutions can navigate a future with crypto

Institutions are increasingly incorporating crypto into their offering. The attractions are clear: potential for huge growth, diversification, and attracting a new client base. Many traditional incumbents such as banks, hedge funds, and asset managers, are beginning to understand that the modern financial ecosystem should include digital assets. Regulatory clarity is improving, and that has encouraged more and more traditional financial institutions to become involved, which in turn has been helping to stabilize and legitimize crypto markets and their reputation. 

For institutions looking at a future in crypto, here are some of the things that need to be considered to navigate that future successfully. 

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Regulatory clarity. Institutions have to stay on top of the ever-changing world of crypto regulation. Regulatory frameworks lack clarity in certain jurisdictions, and many countries have wildly different ideas of which regulations are important. This means an uneven patchwork of legal protocols that do not correspond. Institutions stepping into a future with crypto must understand which regulations impact them the most, and stay up to date to mitigate uncertainty. Becoming fully compliant is a resource-intensive task that institutions must make the time and budget for. 

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Security. Cryptocurrencies are susceptible to fraud and scams, particularly when user education is not at the required level. Financial institutions are not new to security, but digital assets and the blockchain come with a new and different set of considerations for safety. It also requires a good amount of user education. Users that are informed on security requirements and measures will be a benefit to the institution, and it will be up to them to provide this education to the best of their ability. 

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Reputation risks. Along with different security risks and market volatility comes reputational risk. Institutions must be aware of the reputational hits that could be taken with crypto ventures, particularly when it comes to attracting new users. A negative perception of crypto will deter users from moving into the space, and could expose an institution to potential backlash. However, by addressing this challenge and adequately communicating safety measures and strong regulatory guidelines, institutions have a chance to stand out from the crowd and offer safe, secure opportunities for users to diversify their assets. 

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Investment opportunities. Diversification, diversification, diversification. Anyone looking to invest effectively will be thinking about diversifying their assets, and in the modern financial ecosystem crypto and digital assets is the best way to do that. The crypto market has a low (although not zero, offering even more choice) correlation with traditional stocks and bonds, therefore offering a different chance to better performance. It also helps to reduce risk, with assets spread more safely.  

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New client base. Although institutions will be looking to offer crypto assets to their existing customers, they will likely see a new client base of those interested solely in crypto. This customer base may have different requirements and beliefs in the financial system than their existing clients. Crypto enthusiasts are tech-savvy and focused on privacy and anonymity and will already have 

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Exciting times for institutions

Incumbent institutions embracing a future with crypto face both challenges and opportunities. Addressing challenges around security and reputation will only increase those opportunities. By offering digital assets such as crypto, institutions can also find themselves a new younger demographic that is eager for innovative financial products offered alongside the more traditional. Regulation will be one of the biggest topics that institutions must be aware of. They are consistently changing, and maintaining up-to-date regulatory compliance and credibility will give an institution the edge over others that cannot. Ultimately, institutions that add crypto thoughtfully and with innovation will create a more resilient, diverse financial offering. 

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