Swiss Crypto: Investment Trends and Future Insights

You may have no interest in cryptocurrencies or consider them a Ponzi rip-off like Nouriel Roubini or Nobel Economics Prizewinner Paul Krugman, i.e. you don’t want to be the last crypto holder to cash out. But the UN has long been experimenting with the underlying technologies and is already using them to unblock bottlenecks in delivering aid to people like refugees. (See our 2018 article: Forget the profits: how UN blockchains can save the world).

Switzerland has established itself as a key player on the crypto scene, with an estimated 900 crypto companies based in this country (960 including Liechtenstein, employing 5000 people). So it’s as well to stay informed about Crypto Valley, the lakeside town of Zug near Zurich, and listen to what major actors have to say. They came together earlier this month in Zug on the launch of CV Labs’ first Swiss Digital Asset and Wealth Management Report, based on more than 80 interviews with senior executives from banks, wealth managers, and service providers as well as professional individual investors and family offices (See LINK).

You don’t need to watch the broadcast but it’s an easy way into the issues and what you need to learn in order to understand what’s happening. For example, Non Fungible Tokens (NFTs), DeFi (decentralized finance), and Proof of Stake vs Proof of Work. Hint: Proof of Work has nothing to do with your effort to understand the technology. (See YouTube video) – (If you need a summary of the issues, I’d recommend Coin Bureau’s video reviewing the World Economic Forum’s latest Crypto Paper)

It’s not about the price

What is most striking about the one-hour discussion was that none of the panellists mentioned crypto prices. It was all about the technology, removing central control from finance, and giving investors more power.

Why Switzerland? “We are here at the centre,” said one expert. Switzerland “is almost one of the leading hubs of digital assets,” added moderator Matthew Allen, business and finance correspondent for swissinfo.ch.

Marcus Maute, COO of BridgeTower Capital, who describes himself as passionate about the potential of blockchain technology to deliver the SDGs, pointed out: “Switzerland is managing 25 per cent of the global wealth. And we are pretty sure Switzerland will play a major role in managing digital wealth as well. So being here in Switzerland is absolutely indispensable.”

The new report’s author Alexander E. Brunner, said the scene is very different from just two years ago when he published Cryptonation Switzerland: more players, much more diversity, and more choice for investors.

Pointers to the future

The top 50 companies involved in crypto here in Switzerland are valued at $250bn. His key findings looking ahead :

“Switzerland has several key strengths as an ecosystem: a long history of successful companies, a DLT [distributed ledger technology] -law, a savvy regulator, and clarity about taxation. This puts Switzerland at the forefront of the professionalization of the digital asset space.”

“At the same time, this professionalization highlights the ‘decentralization paradox’: What is the right amount of regulation and governance that allows innovation but prohibits abuse?” (See LINK with other details at the bottom of this article)

Brunner contrasted US problems in taxing cryptocurrency with Zug, where you can already pay your taxes with bitcoin.

Switzerland’s convening power

Beat Bachmann, Head of Economic Promotion for the Canton of Zug pointed out that the meeting’s venue, the Liquid Lounge, staged the last large event in Crypto Valley in March 2020 before the COVID-19 lockdown.

Olaf Hannemann, co-founder and CIO of the crypto venture capital firm CV VC which organized the session, observed that Switzerland’s position in Europe enables it to bring together early startups. So far it has reached out to four continents, including a company from Chicago, which he found unusual, and for a good reason. Meeting a Ukrainian startup the American entrepreneurs were able outsource their programming. “They wouldn’t have met them in the US,” he noted. “That to us is the key driver.”

Matthew Allen noted that the Swiss have come up with changes to business and financial legislation in almost record time for the crypto business, providing “a comprehensive restructuring of the legal code to integrate digital assets into the ecosystem” to come into force next month.

Marcel Harmann, head of SEBAversity, the education arm of SEBA Bank, underlined the need to bring new people up to speed on how the crypto ecosystem operates: three years ago the knowledgeable were individuals. Today owners of private banks, their board members and executives of multinational companies “understand it is important to stay ahead of the curve”.

As for the future, Olaf Hannemann says the digital financial world can be considered to be making progress when startups make their 5-minute pitch at investment-seeking meetups without mentioning the technology used: when they “focus on the solution and not which chain you use”. This, he said, is now happening.

Aid needed in Death Valley

But major challenges remain. Global venture capital reached record highs in the last two quarters “in almost all areas”, except for China. And blockchain also benefited. “Switzerland [has] a fantastic angel environment and [at] the very late stage [of development].”

“Where we could see more is the middle, the Valley of Death as we call it, where the use case is there but the revenue is just building up,” Hannemann cautioned.

Participants in cryptocurrency markets are excited by the new Swiss legislation permitting decentralized exchanges.

“Everyone tells me this is the missing piece of the jigsaw — ‘we’ve got to have this’,” reported financial journalist Allen.

“I’m very positive,” agreed Dominik Hofmann, Senior Legal Associate for MME: he advises companies in the technology and financial sectors and has in-depth knowledge of blockchain/DLT technology.

Ali Mizani Oskui said his group, introducing traditional investors to crypto conditions, can work with existing regulations but clear rules on security tokens can be a help.

Maute had other proposals for improving the crypto ecosystem: “Finding a way to get liquidity into these markets is key at the moment. I think we need something like smaller sandbox environments where everyone can get used to it […] and use these technologies in day-to-day work.”

Watch the NFT space

Asked where he thinks the crypto world is going next, Maute was firmly convinced: “What is happening in the NFT space is super exciting.” All the traditional industries — “finance, entertainment, gaming and you name it” — are merging “into one global digital economy.”

Hannemann pointed out that NFTs (non-fungible tokens, i.e. digital assets with unique characteristics that offer provable ownership, from artworks to official documents) will make possible widespread tokenization of assets, “enabling fractional ownership, giving investors more choice, more freedom”.

He further predicted that “in a few years companies will need to have an NFT strategy in the same way they currently need to have a social media strategy – NFT will be much broader than we think it is.”

Ali Mizani added that crypto developments will bring not only decentralization of finance but also of power. “We will be able to have decentralized social media, decentralized search engines, […] decentralized governments.”

Harmann predicted that DeFi (decentralized finance) will be more than just ethereum (ETH)-based, though this crypto currency remains the most popular for bolting add-ons to the crypto system. ETH’s current limitations can make transactions slow and expensive. When combined with governmental initiatives like that of El Salvador, legitimizing the crypto market, DeFI “will really be a power for exponential growth”.

Expect more crypto bashing

On the other hand, he warned, there will be “countries that will start bashing cryptocurrencies becoming they want to push their CBDCs [central bank digital currencies].”

Maute pointed out that PoS (proof of stake) systems require 90% less energy than PoW (proof of work). BridgeTower selected Switzerland for its validator nodes, used in PoS, because of its legislative and physical environment: many data centres here already use renewable energy to power their activities. The company is already investing in decentralized exchanges such as Cosmos (See LINK).

Maute compared bitcoin to a classic car, that for all its obvious appeal is not the most energy efficient. It runs, but it’s not built to carry a lot of people. It is studying scaling solutions such as those of Polygon and Algorand.

Ali Mizani observed that the crypto pioneer bitcoin is so simple in construction it will run into problems with quantum computers that can quickly break down its security processes. “But in the short term, still bitcoin is king,” he declared.

Switzerland is spearheading regulation

Dominik Hofmann noted that “Switzerland is like the spearhead in how [regulation] is done,” but he estimated it will take six months to a year before the first licenses will be issued.

As an indication of the interest in the topic, CV CC said 600 people registered online for the webinar. The company used the occasion to announce four new investment products and said that on 30 August-1 September 2021, CV would organize three days of Summit Leadership Circles in Zug (see below).

—————————

Other key findings from the Report

Banks

“With more than 14 private, retail and online banks currently active in the digital asset space, it can be expected that more banks will launch digital asset offerings in 2021. Investors are clearly expecting a digital asset offering from their preferred bank.”

Investment Products

“Switzerland is the home to several digital asset funds and product managers that have track records going back several years. We have identified at least 10 fund and product managers with more than $1 billion in total assets.”

“The largest Swiss-based fund manager […] passed the crucial $100 million AuM [assets under management] milestone in 2021.” This is the level at which pension funds get interested, Brunner explained.

International allure

“Since the emergence of the Crypto Valley in 2013, Switzerland has become a magnet for global digital asset firms. The acquisition of the Crypto Finance Group by Deutsche Börse, valuing the firm at three-digit millions, was a clear proof-point that the Swiss digital asset ecosystem is thriving and gaining international recognition.”

Venture Capital

“An important pillar of the Swiss digital asset ecosystem is a thriving venture capital industry. With CV VC’s USD $13 million financing round, the Swiss ecosystem is accelerating.”

Institutional Investors

“Family offices and high-net-worth individuals were the early adopters of the new digital asset […] Family offices nowadays have become a force to reckon with. They can deploy large pools of capital unencumbered by strict regulations faced by banks.”

“Next to the banks, wealth managers and multi-family offices have started to offer digital asset services to their clients.”

“2021 was also the year that the first Swiss pension fund made its careful entry into digital assets. This will be the next evolutionary step for the digital asset ecosystem.”

Medium: Key Highlights from the CV Summit Leadership Circles Day 1 (LINK)

Medium: Key Highlights from the CV Summit Leadership Circles Day 2 (LINK)

Medium: Key Highlights from the CV Summit Leadership Circles Day 3 (LINK)

CV Labs: The future of DeFI in Switzerland. 22 June 2021. Has a good explanation of DeFi. It also has a comprehensive but concise presentation by Hannemann of the Swiss crypto situation, CV VC’s venture capital approach and the place of CV Labs (LINK).

See also this article in Global Insights: A Swiss initiative to redo the Internet: crypto scepticism abounds, 3 June 2021 (LINK).

Hamburger Menu