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Panelists Weigh Pros and Cons of Digital Assets for Communities of Color

February 28, 2022

By John Murph

DeFi, Crypto, and Fintech: Opportunities and Risks for Communities of Color
Speakers included, clockwise from top left, Valerie Szczepanik, Chris Brummer, Dante Disparte, Joshua Richardson, and Jolevette Mitchell.

Can investment in the cryptocurrency market help close the racial wealth gap in the United States? The panel discussion “DeFi, Crypto, and Fintech: Opportunities and Risks for Communities of Color,” held on February 22 by the D.C. Bar Corporation, Finance and Securities Law Community, considered the question, with some financial experts coming out in favor of these somewhat risky financial instruments.

De’Ana Dow, a partner and general counsel at Capitol Counsel, argued that digital assets provide greater economic empowerment and access to financial systems for underrepresented and marginalized groups, particularly Black households, which have one-eighth the wealth of white households due to historical disparities in asset homeownership, unemployment, wages, and intergenerational wealth transfers.

Dow cited a Pew Research Center report indicating that 16 percent of Americans are either current or past retail holders of digital assets, with the numbers skewing young and disproportionately Black, Latino, and Asian. “The report notes that disruptive innovation frequently opens markets for people at the bottom of the pyramid, threatening institutionalized finance at the top,” Dow said.

In his recorded keynote address, Congressman Gregory Meeks of New York’s Fifth District said that he’s “cautiously optimistic” about cryptocurrency’s potential for promoting greater financial inclusion among vulnerable communities. “While the cryptocurrency industry is not immune to the overall challenges [regarding] diversity [issues] facing the technology and financial services sector, crypto's penetration to communities of color is notable,” Meeks said.

“Black Americans are leading the so-called crypto revolution,” Meeks added, citing a 2021 Harris poll. “Approximately 23 percent of Black people own cryptocurrencies, compared to 11 percent of white Americans.”

Cryptocurrency also opens up opportunities for providing humanitarian aid to vulnerable people living under authoritarian regimes, said Meeks. “For example, in places like Venezuela and Afghanistan, different types of digital currency have proven extremely valuable to those citizens suffering from crippling economies.”

Nevertheless, Meeks acknowledged that there remain significant unknown risks with cryptocurrencies. “The recent indictment of a New York-based [couple] that sought to launder $3.6 billion in stolen crypto assets illuminates a new frontier in combating financial crimes,” he said.

Financial Freedom

Joshua Richardson, co-founder of Kickback, said that financial literacy, particularly when it comes to digital finance, is crucial in mitigating some of those risks. Still, cryptocurrency moves can be very freeing for those who have otherwise been shunned by the traditional financial market system, he said.

“The most liberating feeling I got was logging on to Avaya, connecting my wallet, putting up my asset for collateral, and being approved for a loan,” Richardson said. “There was no credit check, no discrimination. I'm a number and a wallet. I have the collateral to participate. And I was able to get my loan in under 60 seconds.”

“To me, having that freedom to [not do] those things that we're so accustomed to — coming to a bank, dressing and talking properly, and just hoping that everything checks out according to the system — was refreshing,” he continued. “I have been rejected [for loans] in the past many times. To be able to get that one moment of freedom changed everything for me, and that was my introduction to DeFi.”

When it comes to financial investing, “the traditional brick-and-mortar banking system, and with it Wall Street, has reached a point of diminishing returns,” said Dante Disparte, chief strategy officer and head of global policy at Circle. Still, the cryptocurrency market alone won’t solve the financial inclusion problem, said Disparte, adding that companies such as Circle must assist with digital financial literacy initiatives.

Jolevette Mitchell, fintech counsel at the Federal Deposit Insurance Corporation (FDIC), argued that digital banking and mobile apps have helped create wealth for some people who previously didn’t have any banking relationships. “The FDIC did a ‘How America Banks’ survey, which found that there were over 7 million [households] within the United States that didn't have a banking relationship,” Mitchell said. “They didn't have any credit cards, no savings or checking accounts. And in certain communities, we have banks that are closing down. Some people are traveling even further and further just to get to banks.”

Mitchell said the pandemic has accelerated the adoption of digital banking and other new technologies. “We see mobile banks providing not only access to services; some are providing budgeting services and financial literacy services. And the FDIC has promoted a variety of programs to support those initiatives,” she said.

Balancing Risks

During the discussion, moderator Chris Brummer, founder of D.C.’s Fintech Week and professor at Georgetown University Law Center, asked Valerie Szczepanik, head of the U.S. Securities and Exchange Commission’s (SEC) strategic hub for innovation and financial technology, about financial inclusion at the SEC.

Szczepanik said that the SEC’s mission is capital formation, investor protection, and market integrity, and because it aims to promote a level playing field through regulation, financial inclusion is more implied.

“We want to make sure that we encourage responsible financial innovation while at the same time [delivering on] our mandate to protect investors and the markets,” she explained. “We are disclosure-based regulators. We want to make sure that the investor has equal access to information of importance about their investments, that there's nothing hidden behind the things that they're investing in, and that they know the risks as well as the potential rewards. We want to make sure that the markets are functioning and that investors have rules that apply to them that prevent things like manipulative behavior, front-running, or insider trading.”

Szczepanik expressed her wariness of the cryptocurrency market because so many in the industry act outside of the SEC’s regulatory framework. “And that's very concerning to us,” she said. “We're working hard to bring more investor protections to the market while not creating unfair barriers to entry. We want to create a fair, level playing field so that people go in eyes open, knowing what they're investing in.”

Richardson countered with the adage, “no risk, no regard.” While he believes that there are some people who need investor protection, some requirements in the traditional financial system such as a minimum of $25,000 in someone’s margin account to be considered a day trader is prohibitive to many communities of color.

“There's not a successful individual on this planet who did not come across a path that was risky, regardless of what that looks like. We’re getting to a place where [we are questioning] who is protecting whom,” Richardson said. “This is my money. I worked hard for it. I'm willing to do A, B, and C with it, but I can't because of these ‘protections.’ That blanket statement actually hinders people that look like us and other minorities from getting ahead.”

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