The Swiss “crypto-nation” faces the bitcoin debacle

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

The price of bitcoin has dropped to a third of its peak value. The collapse of land, a cryptocurrency destined to remain pegged to the dollar, has destabilized the entire market. What about the burgeoning Swiss blockchain industry?

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

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

The volatile cryptocurrency market has experienced a new boom and bust. The price of bitcoin rose more than tenfold between mid-2020 and the end of last year, before plunging 30%, with much of the losses felt in recent months.

The expansion phase has attracted money from daily traders (who buy and sell on the same day) and young investors, encouraged by the absence of other earning opportunities and the possibility of obtaining credit to invest at very low interest rates.

love setbacks

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

Driven by a radical overhaul of financial and corporate laws to integrate cryptocurrencies into the business 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 suffer job cuts like Coinbase, the largest cryptocurrency exchange in the US, or corporate failures like hedge fund Three Arrows Capital in the British Virgin Islands, US corporations Celcius , Voyager Digital and Blockfi or the Singapore-based cryptocurrency lending company Vauld.

“My gut tells me that some companies in Switzerland are struggling, but only time will tell how the market will evolve,” says Dirk Klee, director of Bitcoin Suisse based in Zug. 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 are now considering corrections,” adds the director.

Even recent overwhelming setbacks have failed to dampen the enthusiasm of the Swiss blockchain industry as a whole. “These crashes are one of the hallmarks of the cryptocurrency markets. That’s no big surprise, “said Andy Flury, founder of Zurich-based cryptocurrency financial services firm AlgoTrader.

“There is still a lot of experimentation and some technologies are very new. If some things don’t work now, that doesn’t mean there’s no room for improvement, “said Diana Biggs, chief strategy officer of Valor, a Canadian company that issues investment products. Backed by cryptocurrency on the stock exchange.” It’s not possible stop 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 of a cappuccino. What matters is the substance that remains when the bubbles have burst.

The goal of the 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 the tech giants, who 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 creators, such a system will provide fairer ways to trade, exchange, vote, play on computers, run 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 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 large 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 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 stable currency, designed to anchor its value to traditional currencies or other assets, such as gold. the stable currency Terra, which attempted to peg to the US dollar, became very popular until it collapsed, taking billions of dollars of investors with it. Innovation turned into destruction overnight.

This situation has given rise to a flurry of new regulatory controls by various countries, including the United States and the European Union, and by the international bodies that control global financial markets.

It is also undeniable that decentralized finance has been the scene of many 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 digital asset trading resembles the US stock market in 1928 [période de spéculation frénétique qui a précédé le krach de Wall Street]“Urban Angehrn, director of the Federal Financial Market Supervisory Authority (Finma), explained to the Point Zero Forum. “All kinds of abuse […] they are frequent and common.

Tighter regulatory control

So far Finma has focused its efforts on preventing money laundering via cryptocurrencies. Urban Angehrn, however, suggested that the time may be right for tighter regulation to prevent market abuse.

“It is not forbidden to speculate. Speculation is a legal activity ”, said the director of Finma. However, he points out that it is not acceptable to defraud speculators through dubious practices. “We have to operate according to the rules and in a transparent way. We must have the means to combat abusive activities, ”he warned.

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

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

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

Translation from English: Katy Romy

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