Swiss ‘crypto-nation’ faces bitcoin debacle

The pursuit of decentralized digital systems continues despite a period of intense turbulence in cryptocurrency markets. Keystone/ Valentin Flauraud

Bitcoin price has fallen to a third of its peak value. The crash of terra, a cryptocurrency that was supposed 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 that about 20 to 30% of them will die. They will disappear within the next six months.”

The volatile cryptocurrency market has seen a new phase of boom and bust. The price of bitcoin increased more than tenfold between mid-2020 and the end of last year, before falling by 30%, with many of the losses felt in recent months.

The expansion phase attracted money from day traders (who buy and sell in one day) and young investors, encouraged by the absence of other opportunities for gains and by the possibility of obtaining credit to invest at very low interest rates.

bitter setback

“We’ve seen a lot of money blindly flowing into dreams sold by tech-savvy people,” said Erik Wirz, managing partner at headhunting firm Wirz & Partners in the canton of Zug. “People wanted to believe in dreams, but many of them were just window dressing. Several months ago, even before the cryptocurrency price crash, investors started asking, ‘Where’s the business plan, where’s the money?’

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

A self-proclaimed “crypto nation”, Switzerland has yet to experience job cuts like Coinbase, the largest US cryptocurrency exchange, or corporate bankruptcies like British Virgin Islands hedge fund Three Arrows Capital, US companies 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 increased its workforce by 60% to 300 last year, but insists it has expanded while being cautious. “Other players in the market have quadrupled their workforce or even more and are now considering corrections,” adds the director.

The recent crushing setbacks have also failed to dampen the enthusiasm of the Swiss blockchain industry as a whole. “These crashes are one of the hallmarks of cryptocurrency markets. It’s not a big surprise,” said Andy Flury, founder of Zurich-based cryptocurrency financial firm AlgoTrader.

“There’s still a lot of experimentation and some technologies are very new. Just because some things don’t work now 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. supported by cryptocurrencies on the exchanges. “It is not possible to slow down this technology and go back. I’m always optimistic.”

Democratic Internet

Such remarks are typically Swiss and can appear bold. The underlying message is that the price of bitcoin is irrelevant, like the foam from a cappuccino. What matters is the substance that remains when the bubbles are burst.

The goal of blockchain is to build a digital system that frees users from the constraints of the Internet by reducing fees, paperwork, and time wasted by middlemen. It also aims to wrest control from tech giants who harvest 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 creators, such a system would provide fairer ways to trade, barter, vote, play computer games, run a business, collect royalties as an artist, store personal data and a host of other possible 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 Swiss-Singapore Point Zero FinTech Forum 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 clients, as well as the Swiss digital asset bank Sygnum. Metaco, another company that connects the classic financial world with cryptocurrencies recently signed with the US banking giant Citi and Société Générale de France. “The cryptocurrency crash has no impact on the long-term strategies of large financial companies regarding digital assets”, assures Andy Flury.

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

This situation has given rise to a flurry of new regulatory scrutiny from various countries, including the US and the EU, and from international bodies overseeing global financial markets.

It is also undeniable that decentralized finance has been the scene of a lot of wrongdoing. The public’s greed for quick money provides fertile ground for ponzi schemes (fraudulent financial schemes), insider trading, upstream trading and misleading marketing of cryptocurrency investment schemes.

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

Closer regulatory oversight

Finma has so far focused its efforts on preventing money laundering via cryptocurrencies. However, Urban Angehrn suggested that the time may have come for tighter regulation to prevent market abuse.

“It is not forbidden to speculate. Speculation is a legal activity”, declared the director of Finma. However, he emphasizes that it is not acceptable to deceive speculators through questionable practices. “We have to act according to the rules and transparently. We have to have the means to fight abusive activities,” he warned.

Several cryptocurrency companies that started their business on islands, such as exchanges BitMEX and Binance, have taken notice. They are gradually beginning to transfer part of their activities to highly regulated jurisdictions such as Switzerland.

The cryptocurrency crash will also drive underperforming companies out of business. Many surviving businesses see an expected period of falling cryptocurrency prices — known as “crypto winter” — as an opportunity to build quietly without being distracted by trading frenzy.

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

Translation from English: Katy Romy

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