Click To Explore 5 Key Steps
01
Educate The Entire Team On Crypto Fundamentals
Few financial institutions took bitcoin seriously when it was trading for pennies, then dollars, and even hundreds of dollars. At current prices—even in a bear market—it’s impossible to ignore.
Billingham offers this important insight to financial professionals before jumping into the crypto waters: “[For those] who are successful in this space, the first step they take is just getting educated.”
Newcomers should speak with experts who have worked with crypto since its earliest days, and be sure to include everyone who’s expected to handle this new asset class. The goal: a team of finance professionals who can communicate about and identify crypto risks clearly and effectively with one another.
“Everybody [should] use the same language [and] vocabulary,” Billingham says. Then, you can “identify which policies, procedures and workflows need to be changed before they even consider any kind of business activity in crypto.”
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Everybody [should] use the same language [and] vocabulary.”
Jeff Billingham
Vice-President Of Capital Markets, Chainalysis
02
Don’t go it alone; find service providers who know the crypto landscape inside and out
03
Reduce Exposure With Crypto-Backed Products
Mitigate crypto’s volatility to create upside for yourself and clients
04
Begin Accepting Cryptocurrency Deposits
Work with experienced partners to take this next step in your crypto journey
05
Gradually Increase Product Complexity
To reduce risk, build, test and roll out sophisticated services incrementally
Vice-President Of Capital Markets, Chainalysis
Jeff Billingham
[We help] banks understand … which risks you can actually control for.”
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Some risk-averse bankers and other finance professionals are understandably wary of crypto. Whether through a hack or human error, frightening amounts of cryptocurrency can be stolen or lost in the blink of an eye.
Though intimidating, these risk factors are not unknowable. In fact, there’s an entire ecosystem of service providers who can help banks and other financial institutions assess risk and confidently onboard cryptocurrency businesses.
“In this world, partnerships are absolutely critical,” Billingham says.
Chainalysis, for example, offers robust, field-tested tools that monitor and analyze blockchain transactions to help banks better vet their cryptocurrency business counterparties and assess financial crime and fraud events that involve cryptocurrencies.
“[We help] banks understand the risks involved with cryptocurrency businesses and which risks you can actually control for,” Billingham says. “It’s gotten them a whole lot more comfortable with accepting [and] extending banking services to different cryptocurrency businesses.”
02
Seek Expertise In Partnerships
Vice-President Of Capital Markets, Chainalysis
Jeff Billingham
You can start to provide clients with that access … without actually having to transact.”
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Once an institution is conversant in crypto’s mechanics, risks and controls, it’s possible to start offering crypto-based products. In Billingham’s experience, institutions at this point in their journey may find greater institutional comfort—and faster time-to-market—with synthetic products.
Rather than accepting cryptocurrency deposits or holding digital assets on the client’s behalf, crypto can be incorporated into safer, more traditional products—for example, credit and reward cards that use crypto on the back end but don’t expose issuers to crypto’s volatility. With these products, customers can realize some of crypto’s upside without requiring the institution to hold crypto on its books.
Similarly, tried-and-true investment vehicles like futures and trusts can produce returns for both the client and institution without the need to create a custody infrastructure.
“With those synthetic products … you can start to provide clients with that access [and] price exposure … without actually having to transact,” Billingham says.
03
Reduce Exposure With Crypto-Backed Products
Crypto-based systems tend to be more streamlined and efficient.
Eventually, clients will come to expect direct access to the crypto markets. At this stage, it’s time to add deposit capabilities for crypto.
Historically, many financial institutions have built new platforms, products and services in-house. Confident in their ability to remain safe, secure and compliant, they maintained complete control.
Cryptocurrency’s many nuances allow for new and different controls that make the most of blockchain’s transparency. Compared to legacy products, crypto-based systems tend to be more streamlined and efficient but only when they’re using the best, most comprehensive datasets.
Here, again, great partners can help enormously.
“Partnering is definitely a journey for a lot of institutions, [but] the right folks [can] make sure everything from the compliance concerns, to the security concerns, to regulatory concerns are taken care of,” Billingham says.
04
Begin Accepting Cryptocurrency Deposits
Vice-President Of Capital Markets, Chainalysis
Jeff Billingham
As markets mature ... [investor] appetite for differentiation will grow.”
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As institutional expertise grows, so too can the complexity of financial offerings—like bridges to decentralized finance (DeFi) markets, crypto-backed payments and DeFi-backed loans. Just don’t roll out everything at once.
“Customers … will want to differentiate their product offerings over time,” Billingham says.
Complexity must increase incrementally. Banks are more likely to become comfortable with more complex tokens and marketplaces in DeFi and Web3 only after they’ve mastered crypto deposit-taking. “[Risk rating] becomes a whole lot easier once banks [have] built a capacity to take deposits of basic crypto assets,” Billingham says.
Of course, not every financial institution has an appetite for complex crypto products and services. Whether it’s the risk or regulations, many will adopt a wait-and-see attitude. However, they may find themselves under pressure from clients to introduce new investment vehicles—ready or not.
“As markets mature and investors are better able to assess financial risks and opportunities, [their] appetite for differentiation will grow,” Billingham says.
05
Gradually Increase Product Complexity
Seek Expertise In Partnerships
Your goal: a team of finance professionals who can communicate clearly and effectively
01
Educate The Entire Team On Crypto Fundamentals
Don’t go it alone; find service providers who know the crypto landscape inside and out
02
Seek Expertise In Partnerships
03
Reduce Exposure With Crypto-Backed Products
Mitigate crypto’s volatility to create upside for yourself and clients
04
Begin Accepting Cryptocurrency Deposits
Work with experienced partners to take this next step in your crypto journey
Learn more about how financial institutions
can take advantage of the opportunities in the crypto market and safely launch cryptocurrency products
with Chainalysis’ 2023 Crypto Maturity Model Report.
Read The Full Report