Switzerland's cryptotal looks past cold market winds

The small train was once an innocent place, known for its baking nuns, half -timbered houses and a cherry -soaked cake preferred by Audrey Hepburn.

Then it became a low tax paradise and a magnet for company letter boxes: home of Glencore and other, even less cuddly giants. And now it has become Europe's cryptocurrency kingdom in the inconspicuous commercial parks and low office buildings that spread gently from the small old town.

or, as the clever marketers from Zug like to call it: "Crypto Valley" . In a recently published report, a local investor, CV VC, wrote that there are now 960 crypto start-ups in Switzerland that employ more than 5,000 people. Almost half of the start-ups-433-are based in Zug.

Nothing of this is difficult to overlook these days: Due to advertising recordings, visitors to the country could come to the conclusion that Distributed-Ledger technology in the Swiss contributions is in third place to chocolate and luxury watches. The fintech brother has become almost more natural in the immensely overpriced bars of Zurich than the banking professional from Paradeplatz.

But a cold wind blows through the cryptotal, as is the case everywhere in the blockchain world. UBS warned this week of an impending "crypto winter" because the Federal Reserve raises interest rates. Bitcoin's drop in the course in the past few days has been the first sign that the party is over, believe the bank's analysts.

And so the quiet train can be found on the front line of the global financial world. At least Switzerland seems to believe that crypto is long -term. While other governments are trying to contain crypto business, the country has been very interested in promoting them in the past few months. In February 2021, Bern introduced a new "blockchain law" to codify how digital assets should be treated by the courts when it comes to special aspects such as proof of ownership and storage.

The market regulator Finma is now trying very proactive to deal with the new crypto world and to understand it. It even licensed two crypters in the country: Seba and Sygnum. According to the Finma position, Switzerland is aiming for a first-mover advantage when it comes to crypto fintech.

The big personalities of the industry - hardly a surprise - see a successful future in Switzerland for crypto. During a recent visit to the Sygnum's offices, the CEO Mathias Imbach told me that the volatility and the exuberance that many sober investors combine with crypto is only foam, but were some serious suggestions and investment opportunities underneath.

The Swiss interest in crypto and the enthusiasm of the crypto world for Switzerland, of course, underpin some common values: for example, belief in the power of technology and, which is even more important, a libertarian tendency that prefers political and institutional freedom.

But here is an elephant in the room, perhaps an even greater than the dizzying sale of cryptocurrencies in recent months. And Switzerland does not seem to have a long -term answer to that, no matter where the crypto prices are in a year or how institutionalized the industry has become.

crypto technologies and companies are increasingly the focus of global illegal financial flows and criminal companies. Western secret services, said an old source of an earlier reporting appearance recently, are very concerned about how crypto technology enables illegal financial and political activities.

At a meeting with a crypto asset manager in Zug on an ice-cold morning a few weeks ago, with a coffee in his office, I got a disarming open assessment of the problem in Switzerland: Sure, there are a number of unscrupulous companies in the crypto Valley, he said. And what may be worse, there is an even larger number of very naive entrepreneurs who are keen on cash and customers who believe that they are not tied to the rules of the mainstream financial system.

The crypto assets administration, added to the asset manager, has become a contact point for many compliance-averse financial advisors who have been booted by the scandalous private banks in Switzerland in recent years. And many of the customers of Crypto Valley are apparently politically exposed people who were "deleted" from the banks' books due to fears of reputation for economic crime.

in Zug it seems that - regardless of the prevailing market weather, whether winter or summer - the radiant future of crypto could be a repetition of the dark financial past in Switzerland.

sam.jones@ft.com