Welcome to Watch This Space, a new way for me to deliver K2 Integrity’s high-level expertise and share meaningful perspectives in the marketplace with you. Twice a month, I will highlight a few recent assignments which, I believe, will help reveal emerging risks, trends, technologies and anything our team thinks is important for you to know.
Crypto . . . Is It The Wild, Wild West?
Thank you for the feedback on our first issue of Watch This Space. I truly value every response—please keep them coming.
In the last Watch This Space, we lifted the veil on cryptocurrency and began exploring risks and opportunities within the virtual asset landscape. Today’s topic is . . . also cryptocurrency. Apologies for the sequel, but there’s more to say.
The crypto economy has officially graduated into legitimacy. The virtual asset market is now estimated at over a trillion dollars (that’s a ‘T’). Wall Street’s “blessing” has only intensified the surrounding hype and mystique. While crypto is still only a sliver of the global economy, its remarkable growth is impossible to overlook. Traditional financial services players are, understandably, experiencing major FOMO.
Still, many of us can’t shake the feeling that the crypto landscape remains the Wild West: Unknown (and potentially sketchy) players, lawless vibes, and linkage to the ransomware epidemic. Plus, the use of virtual assets has outpaced the development of regulatory protections, leaving the door open for potential illicit usage, misinformation, fraud and reputational risk. Our team of crypto experts asserts that these new risks can be properly mitigated just as they are in other business practices. It’s a process, like any other. Align yourself with the right advisors and install a comprehensive compliance program (including people, processes, and technology) before you go to market. Only, in this way, do you establish trust.
So, the bottom line: It can be done. We are actively working with players in this space to manage their risk and set them up for success. Here’s just one example of our current assignments:
One of the world’s foremost virtual asset service providers wanted to form a traditional bank that would allow its customers to access the U.S. dollar market. The company had to clear higher regulatory hurdles than it was accustomed to—U.S. sanctions are notably stricter than those in the EU and other parts of the world. But full compliance is a must to obtain a banking relationship in the United States. We helped solidify the partnership, resulting in the reduction of the regulatory compliance frictions and allowing both parties to rapidly grow their respective product lines.
One final thought. It’s important to place cryptocurrency in historical context. Money has been evolving since its inception; a dollar bill is just a piece of paper to which society has assigned value. Virtual assets are, in many ways, an obvious next step. In his new book, The Money Plot, City University of New York professor Frederick Kaufman explains that human creativity drives the conversion of a simple tangible object—beads or precious metals or a flat piece of paper—into something with an attached value. Given our current environment, that flat piece of paper is ripe for innovation.
Try to keep in mind that crypto is uncharted territory for everyone. I encourage you to embrace the unknown. Admit when you don’t know or understand something. Ask tons of questions. Stay informed by reading the news on CoinDesk and Cointelegraph, and following Coinbase CEO Brian Armstrong’s Twitter feed. Also, pay attention to the news coming out of the G7 Central Banks, as well as US federal and state banking regulators like the OCC, FRB, NYDFS, and FinCEN.
And, of course, we are always here to help make sense of this complex space and explore ways to work together. Please take my contact info if you’d like to connect: [email protected]. I hope you do.
Next up . . . how financial institutions can safely partner with cannabis clients.
Best,
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