Swiss ‘Crypto Nation’ Facing Bitcoin Debacle

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

Bitcoin price has fallen to a third of its peak value. 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 start-ups,” said Adrien Treccani, president of Swiss cryptocurrency company Metaco. “I predict that about 20 to 30% of them will die. They will disappear in six months.”

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

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

bitter setbacks

“We’ve 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 on by a major overhaul of financial and business laws to integrate cryptocurrencies into the entrepreneurial landscape, the Swiss blockchain industry has grown to more than 1,000 companies and some 6,000 jobs.

Self-proclaimed “crypto nation”, Switzerland has yet to experience job losses like Coinbase, the largest US cryptocurrency exchange, or corporate failures such as British Virgin Islands hedge fund Three Arrows Capital, US firms Celcius, Voyager Digital and Blockfi or the cryptocurrency loan 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,” said 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 workforces or even more and are now considering corrections,” added 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 AlgoTrader, the Zurich-based cryptocurrency financial services company.

“There is still a lot of experimentation and some technologies are very new. If some things aren’t working now, it doesn’t mean there isn’t room for improvement,” said Diana Biggs, chief strategy officer at Valour, a Canadian-based investment product company. going back. I am always optimistic.”

democratic internet

Such comments are typically Swiss and may seem daring. The underlying message is that the price of bitcoin is irrelevant, like the foam of a cappuccino. What matters is the dust left over 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 costs, paperwork and time wasted by middlemen. It also aims to take control of tech giants, who collect personal data for their own benefit. The idea is to create a new type of internet owned and operated by a network of ordinary users.

According to the 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 host of other potential 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, at a meeting of the recent Swiss-Singapore Point Zero FinTech Forum in Zurich.

At AlgoTrader, Andy Flury is optimistic: “None of our clients have pulled out of contracts or delayed projects. The number of new applications has not decreased.” AlgoTrader has ten major banks among its clients, as does Swiss digital asset bank Sygnum. Metaco, another company connecting the classic financial world with cryptocurrencies, recently signed with US banking giant Citi and Société Générale de France. “The cryptocurrency crash has no impact on the long-term digital asset strategies of major financial companies,” assures Andy Flury.

The recent stock market crash was accelerated by the failure of a form of cryptocurrency known as stable currency, which is designed to peg its value to traditional currencies or other assets, such as gold. the stable currency Trying to peg to the US dollar, Terra became wildly popular until it collapsed, taking billions of dollars from investors. Innovation turned to destruction overnight.

This situation has sparked a wave of new regulatory oversight from several countries, including the United States and the European Union, and from international bodies overseeing global financial markets.

There is also no denying that decentralized finance has been the scene of much misbehavior. 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]“Stated Urban Angehrn, Director of the Swiss Financial Markets Regulator (Finma), at the Point Zero Forum. “All kinds of abuse” […] occur frequently and frequently.

Closer regulatory oversight

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

“It is not forbidden to speculate. Speculation is a legal activity,” said Finma’s director. However, he emphasizes that it is unacceptable to defraud speculators through questionable practices. “We have to act according to the rules and transparently. We must have the resources to fight abuse,” he warned.

Several cryptocurrency companies that started their businesses on islands, such as the BitMEX and Binance exchanges, have noticed this. They are gradually starting to transfer some of their business to highly regulated jurisdictions such as Switzerland.

The cryptocurrency crash will also drive 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 build quietly without being distracted by the trading frenzy.

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

Translation from English: Katy Romy

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