Swiss 'crypto-nation' faces bitcoin debacle

Swiss ‘crypto-nation’ faces bitcoin debacle

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

The bitcoin price has fallen to a third of its peak value. The crash of terra, a cryptocurrency meant 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

“The market crash is going to be cataclysmic for a lot of Swiss start-ups,” said Adrien Treccani, director of Swiss cryptocurrency firm Metaco. “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 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 crashing 30%, with much of the losses felt in recent months.

The expansion phase attracted money from day traders (who buy and sell on a 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 setbacks

“We have seen a lot of money flowing blindly 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 a lot of them were just window dressing. Several months ago, even before the cryptocurrency price crashed, investors started asking, ‘Where’s the business plan, where’s the money?’”

Spurred by a sweeping overhaul of finance and company laws to integrate cryptocurrencies into the entrepreneurial landscape, the Swiss blockchain industry has grown to over 1,000 companies and some 6,000 jobs.

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

“My instinct tells me that some companies in Switzerland are struggling, but only time will tell how the market will evolve,” 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 remaining cautious. “Other players in the market have quadrupled their workforce or even more, and they 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 services company AlgoTrader.

“There is still a lot of experimentation 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 firm that issues investment products. backed by cryptocurrencies on the stock exchanges. “It is not possible to curb this technology and go back. I am always optimistic.”

Democratic Internet

Such remarks are typically Swiss and may seem audacious. The underlying message is that the price of bitcoin is irrelevant, like the froth of 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 constraints of the internet by reducing fees, paperwork, and time wasted by intermediaries. It also aims to wrest control from tech giants, who harvest personal data for their own benefit. The idea is to create a new type of internet, owned and controlled by a network of ordinary users.

According to its creators, such a system will provide fairer ways to trade, exchange, vote, play on computers, manage a business, collect royalties as an artist, store personal data and a multitude 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 a meeting. of 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 does the Swiss digital asset bank Sygnum. Metaco, another company that connects the classic financial world with cryptocurrencies, recently signed 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 terms of digital assets”, assures Andy Flury.

The recent stock market crash was accelerated 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. the stablecoin Terra, which attempted to peg to the US dollar, became wildly popular until it collapsed, taking billions of investor dollars with it. Innovation turned into destruction overnight.

This situation has given rise to a flurry of new regulatory scrutiny from different countries, including the United States and the European Union, and from international bodies that oversee 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 deceptive 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]“Explained Urban Angehrn, director of the Swiss Financial Market Supervisory 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. Urban Angehrn, however, hinted that the time might be right for stricter regulation to prevent market abuse.

“It is not forbidden to speculate. Speculation is a legal activity”, declared the director of Finma. However, he stresses that it is not acceptable to defraud speculators through dubious practices. “We have to trade by the rules and transparently. We must have the means to fight against abusive activities,” he warned.

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

The cryptocurrency crash will also drive underperforming companies out of the market. Many surviving businesses view an anticipated period of declining cryptocurrency prices – known as “crypto winter” – as an opportunity to build quietly without being distracted by the trading frenzy.

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

Translation from English: Katy Romy

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In accordance with JTI standards

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