In those heady cryptocurrency bubble days a few months ago, the home of private banking spoke. Switzerland, its Economics Minister Johann Schneider-Ammann said, wanted to be a “crypto nation”.
It is worth noting that his government’s attitude in embracing alternative currencies, such as Bitcoin and Ethereum, and the technology behind them, has been a world apart from many others.
While some countries have sought to crimp the development of crypto, or ban it outright, Switzerland’s open arms approach propelled it to second place globally last year in terms of financing for crypto firms. Four of the ten largest initial coin offerings were conducted in Switzerland, while a total of 33 ICOs raised $1.46 billion, putting it only behind the US.
The epicentre of the Swiss crypto sector is Zug, a picturesque lakeside town, surrounded by mountain peaks, which is now home to more than 200 crypto and blockchain startups.
The area has been dubbed Crypto Valley, complete with its own Crypto Valley Association to promote the interests of the industry and attract further investment.
Switzerland’s decentralized, bottom-up political culture is a natural fit for the decentralized, bottom-up crypto technologies of the future, the association says. Add to that a low tax rate, clean and safe environment and high quality of life and it has a lot to offer startups.
The town itself is incorporating crypto into its daily life, agreeing to accept bitcoin for tax payments and carrying out a trial vote using blockchain for municipal elections.
In contrast to other e-voting systems, the voting process in the city of Zug did not take place via a single central server, but was distributed across many computers.
But this bucolic scene of crypto reverie is not without its problems. The growth in ICO fundraising has slowed sharply this year and some are asking whether the cowbells are tolling for Switzerland’s crypto aspirations.
The problem is that although regulators have rolled out the red carpet, the country’s traditional banks have been far less welcoming. Having benefited from centuries of strict banking secrecy laws, in recent years Swiss lenders have been required to lift the veil. They are now balking at lending to crypto firms due to a perceived lack of transparency.
Faced with closer regulatory scrutiny, they have cited risks of money laundering and problems in compliance with know-your-customer rules for withholding services.
As a result, Zug has seen a steady trickle of firms leaving for greener pastures such as Gibraltar and Liechtenstein.
“You can do a lot with crypto — but you can’t pay rents and salaries,” Alain Kunz, chief executive of Coinlab Capital, a Swiss start-up offering blockchain asset management services, told the Financial Times.
Anxious not to lose its edge in the crypto world, regulators have been scrambling for an answer. The Swiss Bankers Association recently came up with guidelines to encourage its members to provide companies with full access to traditional banking services. The guide makes key distinctions between blockchain-focused companies seeking to raise capital through an ICO and those who do not. According to the outline, companies that do not fundraise through an ICO should be treated no differently than regular small-to-medium-sized enterprises.
The ball is now back in the Swiss banks’ court as to whether they embrace fintech and its related applications. Other jurisdictions, such as Singapore and Hong Kong, are rising fast in the crypto sphere and are keen to gain a slice of the pie.
Though perhaps a bigger threat is that the banks risk being bypassed altogether. Zug-based SEBA Crypto, headed by former UBS executives, recently raised $100 million for a fully regulated crypto currency bank with the aim of muscling in on ICO advisory, crypto currency trading and related services.
If it gets its licence, its cyber vaults may soon be glistening with Bitcoin bullion.