4 Things You Need to Know About Cryptocurrencies and Block Chain

Brad Johnson, CFA, CFP®, Vice President/Senior Investment Officer

Thanks to the surge in the stock prices of cryptocurrencies like Bitcoin—and the technology companies that allow for its use—conversations around this topic often get emotional. Some are gripped by the fear of missing out on an opportunity to “get in on the ground floor,” while others quickly dismiss the volatile stock prices as evidence of a growing bubble, much like the dotcom era of the early 2000s.

The reality, however, can be found somewhere in between, and the conversation is far from over. To help inform the discussion, here’s what you need to know about cryptocurrencies and the technology—block chain—that makes them possible.

#1: The Technology Is Legit.

Block chain, is both legitimate and of real significance. It has the potential to change how business is transacted and information exchanged, resulting in an instantaneous and verified transfer.

It also creates a decentralized payment system that cuts out the middleman, the Federal Reserve system, in particular. This is the inverse of the current financial system in which the central bank makes decisions regarding monetary policy. This efficiency will have many applications, including reducing opportunities for fraud and lowering cash management costs. However, the technology and its use are years away from being able to support widespread adoption of block chain transmissions. That said, it’s well worth keeping an eye on the companies that are at the forefront of making block chain an eventual reality in day-to-day payment systems.

#2: Bitcoin Is Not the Only Cryptocurrency in Town.

There are thousands of cryptocurrencies, but Bitcoin is the most well known in its rapidly expanding universe. Cryptocurrencies are not on equal footing with currencies like the dollar, however. They are issued in fixed amounts—like trading cards. Their value rises and falls with demand for their limited supply. That undermines their use as a store of value. Currently, there are no regulatory bodies in charge of cryptocurrencies and no exchanges on which they trade. This creates a “wild west” of sorts—similar to the U.S. banking system prior to the 1900s, when individual banks, as well as the U.S. Treasury, issued currency. It will be a while before standards are in place enabling cryptocurrencies to function on equal footing with country currencies and “winners” emerge among the thousands of options.

Also important to note is that because of the outsized attention that speculation in the coins has caused, the public has a misperception about the influence this payment option has on the economy and world markets as a whole. It is still in its infancy and much too small to move global markets at this point.

#3: Cryptocurrencies and Block Chain Are Not Able to Replace the Current Financial System.

While the technology is exciting and has a role to play in the future, we think it’s more likely that cryptocurrencies and block chain will be a payment tool that resides within the current monetary system. Consider that because the coins are finite, the payment and its receipt are immediate—and it occurs on a one-to-one basis—there is no opportunity for lending.

The current global financial system operates with an infinite amount of currency. Central banks, like the U.S. Federal Reserve, have mechanisms for expanding and contracting the money supply to support the economy through borrowing and lending activities. Loans—whether between banks, countries, or banks and their individual and corporate borrowers—are a key part of the system. Without lending, there are no mortgages or car loans—credit that creates the liquidity necessary to increasing economic wealth. That, in turn, would not be good for economic growth.

#4: Participation in Cryptocurrencies Is Limited.

Regulated wealth management firms like ours are prohibited from acquiring and holding cryptocurrency positions for clients. There just is no mechanism for us to do to so as a fiduciary. Also, the cryptocurrency world is currently plagued by fraud and confusion since anyone can issue coins. Pyramid schemes have also been increasing. What we can do for our clients is monitor and suggest investment—where prudent—in the companies involved in developing block chain technology and the applications that will eventually emerge.

It’s Too Soon

There is little doubt that, at some future point, cryptocurrencies and block chain will become part of the mainstream financial world. However, adoption of block chain and cryptocurrencies is not imminent. The technology and its use are years away from being able to support widespread use. How the system will work, who will use it, which currency or currencies will be adopted, and the opportunities they will give rise to, however, are something we continue to monitor closely.

To stay current on the latest developments impacting the investment world, consider subscribing to our weekly newsletter. Our Wealth Management representatives are also eager to answer your questions about opportunities to grow your invested assets. To reach us, call 630-906-2000 or visit us online.

Diversity and Inclusion Comes From Within

Damaris Abella, Vice President—Support Centers 

The sense of belonging is one of the perks of coming to work at Old Second Bank each day. It’s like being part of a family, a very large family. Like most families, ours spans generations—from our call center representatives with decades of banking experience to our newly hired tellers.

The feeling also extends beyond the people who work here. Many of our customers are members of families who have banked with us through several generations. Then, there are customers we just know so well; they seem like family.

What is particularly gratifying, especially for me, is that our Old Second family is as culturally diverse as the communities and businesses we serve. It’s a reflection of the people we see, where we go and how we live our daily lives.

At Our Core

What I believe helps us achieve and sustain this highly inclusive and personal environment, for both our customers and ourselves, is that our staff members have gone “all in,” so to speak, in adopting the core values at the heart of Old Second. Normally, core values are an inward facing thing. However, they’re reflected in the encounters we have with our customers.

We Are Here to Serve

As a member of Old Second’s Diversity and Inclusion Committee and a longtime member of the Diversity, Equity and Inclusion Committee for Oswego School District 308, I thrive on being responsible to and for people. As the head of Old Second’s call center, I have a unique view of how well we as a banking family reflect our values and how our customers react and benefit from them.

From working with staff members across the management structure and different divisions of Old Second, I’ve noticed a common driver: Each of us wants to make a difference, for you, for the bank and for our families.

Making that difference takes teamwork. Like a family, we need to be there for one another. That means when a customer raises a concern, we work together as quickly and efficiently as possible to address the issue to everyone’s satisfaction.

Empowered Ownership

When you work in a call center, the reality is that your job is to get every caller a quick resolution. Whether it is an issue with an ATM, a lost wallet, or opening a new account, we are in a position that empowers us to take ownership of finding the quickest way to a resolution. Regardless of where an issue originates—with us, with you, with some source beyond our respective control—you can trust us to do what needs to be done to get things right—and also to be professional about it. Then, we look for ways the next caller’s experience can be improved. We do this for a living, after all, and we want to be the best we can be at it.

Customized to You

When you treat everyone the way you would like to be treated, it creates a pleasant environment. It also becomes quite personal. Maintaining this level of personalization cuts to the core of what Old Second is all about. For instance, in the call center, it’s the reason we keep our upfront phone menu to a few clicks. We want to get you to a person as quickly as possible. While we support self-service, we’re all about customization and personal attention. We want you to receive the advice and products that are right for you and your particular situation.

Whether you are looking for a more meaningful banking experience or a career opportunity where your work will have meaning—or you just want to talk to a banker who will take the time to listen—give us a call at 1-877-866-0202. We can’t wait to talk to you!

To learn more about our efforts regarding diversity and inclusion, visit us here.