Swiss “crypto nation” faces Bitcoin debacle

The search for decentralized digital systems continues despite a period of intense turmoil in the cryptocurrency markets. Keystone/ Valentin Flauraud

Bitcoin price has fallen to a third of its high. The crash of Terra, a cryptocurrency intended to remain pegged to the dollar, destabilized the entire market. What about the burgeoning Swiss blockchain industry?

This content was published on July 27, 2022 – 11:00 am

“The market crash will be catastrophic for many Swiss startups,” said Adrien Treccani, director of Swiss cryptocurrency firm Metaco. “I predict about 20-30% of them will die. They will disappear within the next six months.”

The volatile cryptocurrency market has experienced a new phase of boom and bust. Bitcoin’s price surged more than 10x between mid-2020 and late last year before plunging 30%, with much of the losses felt in recent months.

The expansion phase drew money day trader (who buy and sell in one day) and young investors, encouraged by the lack of other profit opportunities and by the possibility of obtaining credit for investments at very low interest rates.

severe setbacks

“We saw how much money blindly poured into dreams sold by tech-savvy people,” said Erik Wirz, managing partner of headhunting firm Wirz & Partner in the canton of Zug. “People wanted to believe in dreams, but a lot of them were just window dressing. A few months ago, even before the cryptocurrency price crashed, investors started asking, ‘Where’s the business plan, where’s the money?’”

Spurred by a major overhaul of financial and corporate laws to integrate cryptocurrencies into the corporate landscape, the Swiss blockchain industry has grown to over 1,000 companies and around 6,000 jobs.

Self-proclaimed “crypto nation” Switzerland has yet to see job cuts like Coinbase, the largest US cryptocurrency exchange, or corporate failures like British Virgin Islands hedge fund Three Arrows Capital, American firms Celcius, Voyager Digital and Blockfi, or cryptocurrency lending firm Vauld-based in Singapore.

“My gut tells me that some companies in Switzerland are struggling, but only time will tell how the market will develop,” comments Dirk Klee, director of Zug-based Bitcoin Suisse. The company has increased its workforce by 60% to 300 over the past year, but insists it has expanded while remaining cautious. “Other market players have quadrupled or even more their workforce and are now considering corrections,” adds the director.

Even the most recent devastating setbacks could not dampen the enthusiasm of the Swiss blockchain industry as a whole. “These crashes are one of the hallmarks of the cryptocurrency markets. It’s not a huge surprise,” said Andy Flury, founder of Zurich-based cryptocurrency financial services firm AlgoTrader.

“There is still a lot to experiment with and some technologies are very new. If some things aren’t working now, that doesn’t mean there isn’t room for improvement,” said Diana Biggs, chief strategy officer at Valour, a Canada-based company that issues investment products backed by cryptocurrencies on exchanges. “It is not possible to contain this technology and go back. I’m always optimistic.”

Democratic internet

Such remarks are typically Swiss and may seem bold. The underlying message is that the price of bitcoin is irrelevant, like the froth on a cappuccino. What matters is the substance that remains after the bubbles have burst.

Blockchain’s goal is to build a digital system that frees users from the limitations of the internet by reducing fees, paperwork, and wasted time by intermediaries. It also aims to wrest control from tech giants that collect personal data for their own benefit. The idea is to create a new kind of internet, owned and controlled by a network of ordinary users.

According to its developers, such a system will provide fairer ways to trade, exchange, vote, play computer games, run a business, collect royalties as an artist, store personal information, and a multitude of other uses.

“Crypto as an asset class is here to stay despite recent events,” said Tracey McDermott, head of conduct, financial crime and compliance at Standard Chartered Bank, during an interview at the recent fintech forum Swiss-Singapore Point Zero in Zurich.

At AlgoTrader, Andy Flury is optimistic: “None of our clients have withdrawn from contracts or delayed projects. The number of new inquiries has not decreased.” AlgoTrader counts ten major banks among its customers, as well as the Swiss digital asset bank Sygnum. Metaco, another company that combines classic finance with cryptocurrencies, recently signed a deal with American banking giant Citi and Société Générale de France. “The cryptocurrency crash has no impact on the long-term strategies of large financial companies in relation to digital assets,” assures Andy Flury.

The recent stock market crash was hastened by the failure of a form of cryptocurrency known as stablecoin, which aims to peg its value to traditional currencies or other assets such as gold. the stablecoin Terra, which attempted to peg itself to the US dollar, became very popular until it collapsed, taking billions of investor dollars with it. Innovation turned to destruction overnight.

This situation has prompted a flurry of new regulatory scrutiny from various jurisdictions, including the United States and the European Union, as well as from international bodies that oversee global financial markets.

There’s also no denying that decentralized finance has been the scene of much wrongdoing. The public’s greed for quick money provides fertile ground for Ponzi schemes (fraudulent financial schemes), insider trading, upstream trading, and fraudulent marketing of cryptocurrency investment schemes.

“Much of digital asset trading resembles the US stock market in 1928 [période de spéculation frénétique qui a précédé le krach de Wall Street]’ said Urban Angehrn, Director of the Swiss Financial Market Supervisory Authority (Finma), at the Point Zero Forum. “All kinds of abuse […] are common and common.

Tighter regulatory oversight

So far, Finma has focused on preventing money laundering using cryptocurrencies. However, Urban Angehrn indicated that the time may be right for stricter regulation to prevent market abuse.

“Speculation is not forbidden. Speculation is a legal activity,” said the Finma director. However, he emphasizes that it is not acceptable to defraud speculators through dubious practices. “We have to stick to the rules and act transparently. We must have the means to deal with abusive activities,” he warned.

This has caught the attention of several cryptocurrency companies that started their business on islands, such as exchanges BitMEX and Binance. They are beginning to gradually shift part of their business operations to heavily regulated countries such as Switzerland.

The cryptocurrency crash will also force underperforming companies out of the market. Many surviving companies see an expected period of plummeting cryptocurrency prices — known as “crypto winter” — as an opportunity to build in peace without being distracted by the trading frenzy.

“This bubble burst will filter and simplify the market. Usually, after a big collapse, new opportunities arise,” says Adrien Treccani, director of Metaco.

Translation from English: Katy Romy

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