The country has experienced much success in crypto to date, but can Europe’s ‘crypto valley’ maintain a competitive edge on the global stage? By Hannah Godfrey.
Switzerland, home to a banking and finance system that is traditionally best known for holding old money and guarding client confidentiality, has taken several giant steps in recent years to open its financial markets to the cryptocurrency and digital securities industry.
In February 2021, it passed the ‘blockchain law’, which paved the way for a fully regulated cryptocurrency and digital securities industry. The country has also granted two crypto banks licences to operate in Switzerland, launched a digital stock exchange, and the Swiss regulator recently greenlit the country’s first crypto fund, the Crypto Market Index Fund.
Although crypto markets have had a volatile start to 2022 – at the time of writing, bitcoin is down 18.85% in the year-to-date, and down around 40% from its November 2021 high – Switzerland’s growing interest in digital securities shows no sign of slowing. Just last month, the stablecoin Tether announced on Twitter that it wanted to make southern Swiss city Lugano “the European bitcoin capital”.
There’s something about Switzerland
So, what makes Switzerland such an attractive destination for those working in the crypto industry?
Ed Hindi, chief investment officer and co-founder of Swiss-based cryptocurrency hedge fund Tyr Capital, moved his firm to Switzerland from the UK because he felt Swiss regulator Finma was taking a more proactive approach to engaging with crypto firms. By contrast, he sees the UK’s Financial Conduct Authority (FCA) as hesitant.
“There’s an open-door policy where you can pick up the phone, you can sit down with [Finma] and you can effectively make your views known. You feel you’re welcome and they’re trying to work with you to effectively design the barriers of your ecosystem,” Hindi says.
In addition, Switzerland has “a very pro-business environment”, which encourages companies to set up shop, he says. “It’s very entrepreneurial, and that’s always been the case. Crypto is just taking advantage of the Swiss system that works and has proven through the years that it works very well.”
Old money versus new money
Switzerland’s relatively new foray into the crypto and digital asset world is a far cry from its more traditional, ‘old money’ associations. Banking in Switzerland is steeped in history and has a reputation for client confidentiality and secrecy. It is old money’s dichotomy with modern-day crypto interest that leads some to believe Switzerland could struggle to adapt to a new world.
Nils Bulling, head of strategic innovation and ecosystem at Swiss-based fintech Avaloq, does not believe Switzerland’s existing reputation will stand in the way of it embracing digital finance.
“The image of a conservative Swiss financial industry is dated,” he maintains, pointing out that Switzerland is home to one of the world’s most active crypto scenes in which established institutions proactively work with innovative start-ups to accelerate the digitalisation of the financial industry.
Indeed, established players have plenty of crypto hopefuls to choose from – the Financial Times recently reported there are now some 960 crypto start-ups in Switzerland, with 433 of those based in Zug, Switzerland’s ‘crypto valley’. Prominent coins such as ethereum, tezos, solana, polkadot and cardano call Zug home.
“Switzerland has always been a place where a lot of innovation is happening,” says Jan Brzezek, CEO at Crypto Finance Asset Management.
“A lot has changed when we look at the financial industry in Switzerland today. Switzerland has already welcomed two new crypto banks, and even traditional financial institutions have moved into the crypto asset space.”
The chief executive insists that if they “do not want to be left behind by newcomers”, traditional financial institutions will have to adjust to ensure they are adapting to younger customers’ needs.
For Tyr Capital’s Hindi, part of Switzerland’s interest centres on serving a younger, self-made crowd of entrepreneurs – a demographic he says private banks started paying attention to only a couple of years ago.
“The overall trend of being attractive to entrepreneurial wealth versus old wealth is the way forward, and Switzerland is most concerned by that,” he says. “Over time, and in a careful way, I expect [Switzerland] to regroup its businesses towards young entrepreneurs, and one of the ways to do that is crypto.”
Staying ahead of the crowd
Switzerland is not the only nation adopting crypto payment methods and welcoming aficionados and their businesses. Countries taking similar action include Dubai, Malta, Singapore, Canada, Bermuda and Luxembourg.
Switzerland, however, has one major advantage over its international rivals: its association with security and political stability.
Tom Higgins, CEO of trading technology company Gold-i, explains: “As a brand, Switzerland is well connected and respected as a place of security and political stability. These are essential when it comes to digital assets and digitalisation in general.”
Nevertheless, if Switzerland wants to remain one of the frontrunners in the race for crypto dominance, there are still things it can do to fend off competitors.
One of these is offering specialist ‘crypto visas’ to continue to attract talent in the young industry, according to Mark Basa, global brand and business manager at crypto company Hokk Finance: “To be competitive, I would say [Switzerland] would need to create a crypto focus visa – so, a visa for you, your family and employees if you wanted to set up a crypto company and keep your money onshore.”
However, he believes Switzerland’s crypto scene will struggle to compete with the likes of Dubai.
“Dubai seems to be in the lead today, as Malta and Singapore are having regulation issues,” he says. “The thing about Dubai is that it’s doing things on its terms, and even some of the royal family are bullish on crypto. This means what they say goes, and it does not necessarily have to go through all the bureaucracy that Switzerland does.”
He adds: “Dubai [also] offers a 0% tax rate for companies. I’m not sure how Switzerland could compete [with that], even with its relatively low corporate tax.”
Lars Holst, founder and CEO of digital brokerage GCEX, is more optimistic. He points out that Switzerland has a geographical advantage, in that any EU-based crypto funds would naturally gravitate towards a European digital exchange over anywhere else in the world.
“To maintain a competitive edge, Switzerland needs to keep up to date with fast-moving product and technology changes, to continue to embrace these changes and not resist them,” Holst says.
“Switzerland has a real opportunity in terms of being recognised as a world-class, neutral hub, and I am sure it will thrive as a leader in the digital asset space.”
David Shrier, professor of practice, artificial intelligence and innovation at London’s Imperial College Business School, says if Switzerland wants to maintain dominance in the crypto space, it will need to “accelerate its pace of innovation, expand the upskilling of its workforce, amplify efforts to drive nimbleness in its financial institutions, and navigate creating more flexibility in its regulations by conforming to global standards”.
Switzerland has already taken more steps than any other European nation to embrace cryptocurrency, but Tyr Capital’s Hindi believes the country’s progress is now effectively held back by bigger nations, and that any major changes in the crypto space this year are likely to come from the USA.
“[This year] is going to be the year where the regulations are going to be clearer, and the SEC [Securities and Exchange Commission] will lead the way. Everyone is else is ultimately going to have to follow,” he says.
In 2022, Hindi says, all eyes are on the SEC vs Ripple Labs case. This centres on whether Ripple’s cryptocurrency XRP is considered a security. The outcome will determine if cryptocurrencies face regulatory oversight or if only lighter regulations will apply.
“It’s a watershed moment, and I expect it to be settled before the end of the year,” Hindi adds.
Focusing on Swiss soil, Olaf Ransome, founder of financial consultancy 3C Advisory, says more Swiss local banks, both private and cantonal, will facilitate investing in cryptocurrency for their clients in the coming year.
Such a move would follow the likes of Swiss online bank Swissquote and private bank BBVA, each of which offers trading services.
Elsewhere, Siobhan Moret, associate director at Saffery Champness Registered Fiduciaries, says crypto will increasingly enter the mainstream in Switzerland.
“We are seeing more traditional finance institutions getting onboard with this technology, accepting clients who are crypto native in addition to offering more services which cross the fiat/crypto divide,” she says.