Pub. 12 2021 Issue 4


Cryptocurrency and the Future of Banking

In June 2021, El Salvador’s Legislative Assembly voted to become the first country to accept Bitcoin as legal tender, with Cuba following suit in August 2021. While Bitcoin is widely regarded as the premier cryptocurrency, the rise in Bitcoin’s use over the past decade has paved the way for numerous other cryptocurrencies to come to fruition. The rise in the price of Bitcoin has helped legitimize cryptocurrency in the eyes of those who once thought it was nothing more than a financial fad.

In May 2021, the Federal Deposit Insurance Corporation (FDIC) issued a press release announcing it is gathering information and soliciting comments from interested parties about the insured depository institution’s current and potential digital asset activities. The FDIC issued a request for information (RFI) to help inform its understanding of the industry’s and consumer’s interest in this area. In the release, FDIC Chairman Jelena McWilliams said, “At the FDIC, we are laying the foundation for the next chapter of banking by ensuring we have a regulatory framework that allows responsible innovation to flourish. Digital assets are one area in which we have seen rapid expansion and innovation in recent years. This RFI allows us to gain additional insight into the market and what role banks might play in the future.” The press release provides evidence that the FDIC is seriously beginning to consider what cryptocurrency’s role will be in the future of banking.

According to a December 2020 study survey performed by Cornerstone Advisors, 15% of U.S. consumers own some form of cryptocurrency, and 60% of those cryptocurrency owners said they would use their bank if it offered them the opportunity to invest in cryptocurrencies. Banks have been hesitant thus far to provide cryptocurrency investment services, in part because of its volatility and reputation of being associated with criminal acts. However, this chain of thought would infer that banks do not offer investments with significant volatility and that cash has never been used in criminal activities, which we know is not the case.

The hesitancy of banks to offer cryptocurrency investment services has helped pave the way for platforms like Coinbase, whose initial public offering in April 2021 valued them at $85.8 billion, to offer these investment services directly to consumers. In addition to providing cryptocurrency consumers with an investment platform, Coinbase also offers its customers the use of a debit card that automatically converts cryptocurrency to U.S. dollars at the time of purchases and ATM withdrawals. While it is still only the minority of consumers who invest in cryptocurrency, the creation of companies like Coinbase should at least begin making banks wary of future competition.

I’ve listed some pros and cons of using cryptocurrency from the perspective of users:


  • Twenty-four-hour instant access – cryptocurrency can be accessed 24 hours a day and managed on mobile devices, allowing for instant international transfers without the need for intermediaries or the need to convert to foreign currencies.

  • Growth – cryptocurrency has been growing in popularity since it was introduced and is becoming more widely used for both transactions and as an investment tool. This has the value of certain cryptocurrencies (particularly Bitcoin) to increase in price substantially since its introduction.

  • Unregulated currency – holding an anonymous currency not bound by political changes can be both positive and negative. While anonymity limits the risk of identity theft, it also is inviting to criminal enterprises.


  • Volatility – the prices of cryptocurrency have been subject to extreme volatility. While the price of the most popular cryptocurrencies has largely trended upward since its introduction, the extreme volatility makes it riskier than many traditional investments.

  • No FDIC Insurance – unlike cash held in depository institutions, the FDIC does not insure money invested in cryptocurrencies. However, this is not much different from other traditional investments like stocks and bonds.

Now that I have provided an introduction to cryptocurrencies and discussed the pros and cons to users/holders of cryptocurrencies, I would like to discuss ways that financial institutions can take advantage and provide services to users of cryptocurrencies. Financial institutions have opportunities to profit from cryptocurrencies by providing the following services:

  • Processing payments
  • Providing an exchange for customers to convert cash to cryptocurrencies
  • Facilitating international transfers
  • Opening new accounts by partnering with crypto companies
  • Providing loans

In addition, some financial institutions have begun accepting cryptocurrency as collateral for loans. However, due to the volatility involved, it is necessary for financial institutions accepting cryptocurrency as collateral to have adequate loan-to-value ratios in place to protect them in the event of value decreases.

In conclusion, there is still plenty to be learned before financial institutions (particularly community banks) determine whether it is feasible to begin offering crypto services. However, there is little doubt the use of cryptocurrency will continue to grow. It is important for leaders of financial institutions to get ahead of the curve in learning how cryptocurrency might impact their operations in the future and researching guidance released by regulatory bodies. It is likely that cryptocurrency technology will play a prominent role in the future of financial institutions.

Patrick McGraw, CPA, is a Senior Manager with Baker Tilly, focusing on internal & external audit and consulting. He can be reached at or 304-225-6000.