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After the Bitcoin Boom and Bust, What Financial Services Will Prompt Investors to Buy Cryptocurrency?

by Mike Fishbein
August 15, 2019

If you’ve been following cryptocurrency for the past few years, you’re no stranger to the flood of news coverage about its fluctuating market cycles, price crashes, exchange security breaches, and potential for illegal transactions. In fact, this time last year, experts were busy predicting the inevitable Bitcoin bust after its price had soared to all-time highs.

Despite the negative publicity, talk to young, tech-savvy investors about cryptocurrency and they’ll tell you a different story. Investors argue that the digital currency has the potential to reshape the future of the financial services industry.

Meanwhile, many large companies have begun to explore opportunities for innovation in the space, and a few have even launched new products. Facebook is launching its own cryptocurrency, called Libra, and TD Ameritrade now offers cryptocurrency trading services to its clients.

If we want to know how cryptocurrencies can cross the wide chasm between the high risk-tolerance early adopters and the mainstream, then we need to understand what opportunities exist for financial services innovators.

We used Alpha to run the tests with over 200 main street investors who have a brokerage account or a financial adviser. Most hadn’t previously invested in cryptocurrency.

What about cryptocurrency is attractive to investors?

Cryptocurrency has attracted the attention of investors and techies alike because of its promise to be a decentralized digital currency that can be used for fast and cheap payment transactions, a store of value similar to gold, and the prospect of significant financial returns. Unsurprisingly, when asked what was the most appealing aspect of cryptocurrency, the potential for financial returns was the most common response.

However, several people pointed to one of cryptocurrency’s main flaws as a currency: It isn’t accepted by many merchants.

“Right now, about all it does is allow people to do some speculative investing (or actually gambling). Since it’s hardly accepted anywhere, it certainly is not a medium of exchange yet. Given the price volatility, it is not a store of value.”

“It can’t really be used as a medium of exchange, given its lack of widespread acceptance. It can’t be used as a store of value, given its wild price swings.”

What financial services would motivate people to buy, or buy more, cryptocurrency?

Despite some of the negative reactions from several respondents, there was clearly an interest in cryptocurrency, particularly if some of the current challenges associated with owning and using the digital assets get solved.

We dug deeper to learn what would most motivate people to buy cryptocurrency for the first time, or buy more if they already own it.

People who currently own cryptocurrency said they would be most motivated to buy more if they could spend it at more stores, if they could buy from a trusted exchange or broker, and if it were less risky and volatile.

People who do not already own cryptocurrency were less likely to be motivated by anything except lower volatility and risk and a trusted brokerage provider, two of the most common responses.

One user expressed interest in buying cryptocurrency if it were accepted at more stores:

“I like that cryptocurrency is secure but operates outside of a central banking industry. If stores accepted it, I would feel like I had more security than my credit card in transactions.”

An older investor cited the risks associated with investing as he approaches retirement as one reason why he’s steering clear of cryptocurrency:

“Because I am approaching retirement age and cannot afford to invest in some type of currency that is subject to large fluctuations in value wherein I might lose a significant part of my investment!”

Another respondent echoed those hesitations, saying:

“Until a mainstream banking firm starts using this, I would stay away. I would need to have a trusted bank, brokerage or exchange involved in order for me to be comfortable with considering this new form of currency.”

Would people buy cryptocurrency from a trusted bank?

Given that the need for a trusted broker or exchange came up most frequently with respondents, we used Alpha’s Design Network to test how a cryptocurrency offering by a major bank would perform.

We sent people two landing pages: a) the Coinbase website, and b) the Coinbase website rebranded as a Fidelity website. The copy and graphics on the two pages are the same. We isolated for the brand of the owner.

Coinbase is one of the largest cryptocurrency exchanges on the market right now. It was reported in 2018 to have a valuation of $8 billion.

Users found the Fidelity-branded version of the product to be more trustworthy, with 47% of users considering the Fidelity page trustworthy or extremely trustworthy compared to 25% for the Coinbase page.

One user commented about their hesitation to buy from Coinbase:

“I know nothing about this brand at all. I would need to engage in further investigation.”

Several users described why they would be more likely to buy from the Fidelity-branded service:

“I trust Fidelity. I had my 401k with them. Fidelity has an excellent reputation.”

“Fidelity has a good reputation on all their other divisions and departments, so I have to assume that their crypto division is just as trustworthy.”

Financial services for cryptocurrency investors

Whether cryptocurrency goes boom or bust, current and prospective investors are clearly attracted to the digital tokens’ lofty promise of significant returns and faster and cheaper transactions.

But knowing that respondents found the Fidelity branded exchange to be more trustworthy than the most popular cryptocurrency exchange on the market today, evidently they want a trusted broker or exchange to get them to that financial promise land.

This is a huge test and learn opportunity for financial services brands and innovators: How can you become a trusted cryptocurrency player? What financial product could you build that mitigates crypto’s price volatility and risk? What educational resource would help ease investors’ financial fears? Which payment solution can you create that allows investors to spend cryptocurrency at more stores?

Those are the types of products that may be the tipping point for broader adoption of cryptocurrency and the next $8 billion dollar opportunity in the financial services industry.

Mike Fishbein

Mike is the Host and Producer of This is Product Management, Alpha’s podcast, and the Editor of Product Management Insider, Alpha’s Medium publication.