Crypto Nation Switzerland despite meeting bitcoin crash

The price of bitcoin has fallen to a third of the peak value, an experimental cryptocurrency called Terra has crashed in a spectacular way and several crypto companies have lost jobs or are facing bankruptcy. Where does this leave the growing blockchain industry in Switzerland?

This content was published 13 July 2022 – 09:00
July 13, 2022 – 09:00

Matthew Allen

swissinfo.ch

“The market crash is going to be catastrophic for many Swiss start-ups,” Adrien Treccani, CEO of the Swiss crypto company Metaco, told SWI swissinfo.ch. “I predict that around 20% to 30% of them will die. They will disappear within the next six months.”

The volatile cryptocurrency market has experienced another boom-and-bust phase. The price of bitcoin rose more than tenfold between mid-2020 and the end of last year, and then fell by 30%, and much of the losses were felt in the last couple of months.

The upswing phase sucked in money from day traders and start-up investors, who were encouraged by the lack of other money-spinning opportunities and the joy of getting credit for investing in bottom interest rates.

Crushing setbacks

“We saw a lot of money blindly flow into dreams that were sold by technology-religious boys,” said Erik Wirz, managing partner of Canton Zug’s headhunting firm Wirz & Partners. “People will believe dreams, but much of it was vaporware. Several months ago, even before the cryptocurrency crash, investors began asking, ‘Where’s the business plan, where’s the money?'”

Reinforced by a comprehensive overhaul of finance and corporate laws to fold cryptocurrencies into the corporate landscape, the Swiss blockchain industry has grown to more than 1,000 companies, supporting 6,000 jobs.

The self-designed ‘Crypto Nation’ has not yet seen job cuts in the size of the US-based Coinbase exchange, or company breakdowns in line with the Three Arrows Capital hedge fund in the British Virgin Islands, the US companies Voyager Digital and Blockfi or the Singapore-based crypto lending equipment Vauld.

“My voice tells me that some companies in Switzerland are in trouble, but how the market will play out in the future only time will tell,” said Dirk Klee, CEO of Zug-based Bitcoin Suisse. The company increased its staff by 60% to 300 last year, but insists that it has not overloaded itself, unlike other competitors.

“Other market players have quadrupled their workforce, or even more, and are now looking at corrections. We have been a little more careful, he added.

The recent crushing setbacks have also failed to dampen the enthusiasm of the Swiss blockchain industry as a whole. “It’s just one of the characteristics of the crypto markets that we have these crashes. This was no big surprise,” said Andy Flury, founder of the Zurich-based crypto-financial services firm AlgoTrader.

“There’s still a lot of experimentation and some technologies are very new. If something does not work now, it does not mean they can not do better in the future,” said Diana Biggs, Chief Strategy Officer at Valor, a Canadian-based company that issues crypto-supported investment products on stock exchanges. “It is not possible to put the brakes on this technology and turn around. I remain optimistic in this area. “

Democratic internet

Such words are typical of Switzerland and may sound like bravado or outright delusion. The underlying message is that the price of bitcoin is irrelevant, like the foam on a cappuccino. What matters is the substance that remains when the bubbles have burst.

The goal of blockchain is to build a digital system that frees users from the limitations of the Internet by reducing fees, paperwork and wasted time from middlemen. It also aims to remove control from technology giants who harvest personal data for their own gain. The ethos is to create a new type of internet that is owned and controlled by a network of regular users.

Such a system, say the creators, will offer a fairer means of trade, commerce, voting, computer gaming, running a business, collecting royalties as an artist, storing personal data and a number of other uses.

“Crypto as an asset class has come to stay despite recent events,” Tracey McDermott, head of behavior, economic crime and compliance at Standard Chartered Bank, told the recent Swiss-Singaporean Point Zero Forum on financial technology in Zurich.

“None of our customers have withdrawn from contracts or delayed projects. The number of new inquiries has not decreased, says Andy Flury. “Cryptocracy has no impact on the long-term digital asset strategies of large financial corporations.” AlgoTrader counts ten large banks among its customers, as does the Swiss digital asset bank Sygnum. Metaco, another company that connects the classic financial world with cryptocurrencies, has recently signed up for the American banking giant Citi and Société Générale in France.

The recent market crash was accelerated by the failure of a form of cryptocurrency known as a stablecoin, which is designed to link value to traditional currencies or other assets, such as gold. Terra stablecoin, which tried to tie itself to the US dollar, became very popular until it fell apart, taking with it billions of dollars of investor money. Innovation was destroyed overnight.

This has led to a wave of new regulatory controls from various countries, including the US and the EU, and from international bodies overseeing global financial markets.

Nor can it be denied that decentralized finance has seen a lot of malicious activity. The public’s desire for a fast wallet provides fertile ground for ponzi schemes, insider trading, front-running and misleading marketing of crypto-investment schemes.

“A lot of digital asset trading looks like the 1928 US stock market [a period of frenetic speculation that preceded the Wall Street crash]”Urban Angehrn, head of the Swiss Financial Regulators, told the Point Zero Forum.” All types of abuse … are frequent and common. “

Closer regulation control

The Swiss Financial Markets Authority has so far concentrated its efforts on preventing money laundering via cryptocurrency. But Angehrn suggested that the time may be ripe for stricter policing of market abuses.

“It is not forbidden to speculate. Speculation is a legal activity, he said. But skinning speculators with shady practices is not OK. “We must have orderly trade and openness. We should have the means to fight abuse, “warned Angehrn.

Several cryptocurrency companies that started life on remote islands, such as BitMEX and the Binance exchanges, have taken note by increasingly moving parts of their operations to highly regulated jurisdictions such as Switzerland.

The cryptocurrency crash will also flush weaker performers out of the market. Many surviving companies view an expected period of depressed cryptocurrency prices – known as a “cryptocurrency winter” – as an opportunity to build calmly without distraction from trading madness.

“This explosion bubble will filter out the noise and simplify the market. Normally after a big collapse, new opportunities emerge,” said Adrien Treccani.

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