Mises Wire

Can Crypto Revive Swiss Banking?

The crypto phenomenon is global. Public blockchain networks are neither controlled by any state nor by companies. Rather, they connect the most diverse people across national borders.

Yet despite all of this non-centrality, some government are trying to align their national interest to crypto and create points of contact, in order to provide a home for this new decentralized blockchain technology. Above all there is Switzerland. At the beginning of 2018, former Minister of Economic Affairs, Johann Schneider-Ammann, proclaimed Switzerland as a "crypto-nation". He urged universities, industry and government to make this small country into one of the world's most important crypto hubs.

Bitcoin in Switzerland — A Static Snapshot

A lot has happened since that call. According to the "Top 50 Report" of the investment company Crypto Valley Venture Capital, CV VC, the Swiss crypto scene can proudly point to the following impressive figures: In the first six months of 2019, the top 50 blockchain companies doubled their valuation from 20 billion to a total of 40 billion US dollars. Over 800 companies with more than 4,000 employees are now actively engaged in this up-and-coming sector.

In addition, six Unicorns — start-ups worth more than one billion US dollars — are based in Crypto Valley, Switzerland. The latest highlight was announced at the end of August: With Sygnum AG and Seba Crypto AG, Switzerland is the first nation ever to have two crypto banks officially approved by the responsible regulator. Bitcoin Suisse AG also applied for a banking and securities dealer license in July. Other crypto financial service providers such as Crypto Finance AG, Lykke, Token Suisse, Bity and the Swiss Crypto Exchange are also active in Switzerland.

Revitalizing Switzerland's Financial Sector

Crypto banks, the banks of the future, are seen as a major force to help the Swiss financial center flourish again. It's a fact: Switzerland's banking landscape is not in particularly good shape. The added value of the Swiss financial sector without insurance has fallen from 47 billion to 30 billion over the past ten years, while total GDP has risen from 576 billion to 668 billion Swiss francs.

The Swiss stock exchange is also attracting attention with less pleasing figures. The number of listed securities is steadily declining. There is no denying that public companies are on the retreat. Whereas ten years ago 40 companies per one million inhabitants were listed, this figure is now less than 30.

Anyone wishing to take their company public today must comply with a number of publicity and accounting regulations. The excessive number of regulation costs enormous amounts of money and makes the world of investing more and more an exclusive event for large investors. And even companies that are already listed on the stock exchange are now wasting a quarter of their time on stock market bureaucracy, according to estimates from a 2018 study by the consulting firm Partners Group. Regulatory measures designed to protect investors from risk unfortunately also protect them from returns.

Thanks to blockchain technology, some exponents have regained hope for the troubled Swiss banking sector. Zug-based company Alethena, for example, is trying to bring shares onto the blockchain. Small and medium-sized enterprises in particular should benefit from this development in the future. In general, the Swiss financial center is believed to continue its existence thanks to innovations around this new technology even without the banking secrecy. Optimists even see this sector flourishing again in a not too distant future.

Crypto-Nation: A Contradiction to the Bitcoin Narrative?

For many Bitcoin and blockchain enthusiasts, Switzerland is a good example of how a government and the new decentralized world can cooperate and benefit from each other. Others, however, see the crypto-anarchists' foundation, which the crypto world is based on as being betrayed. According to their view, true blockchain technology will not be able to restore ailing banks to health. Quite to the contrary: Bitcoin has risen to put a stop to banks and their money-creating.

That these critics have a point cannot be denied. As much as Switzerland is open to the crypto world, the efforts of many crypto financial service providers also show that trying to bring fiat money and crypto assets together is quite a hassle. A regulated Swiss banking sector is difficult to reconcile with a decentralized blockchain world. This is the truth crypto enthusiasts are being confronted with on a daily basis.

What should be done about this? For crypto enthusiasts of the first hour, this means enduring the contradictions that accompany the indispensable professionalization and monetarization of this growing sector. In the sense of a genuine discovery process, it is necessary to find out where pragmatic admissions to practical politics are necessary, but also where uncompromising implementations of crypto's original idea must be enforced.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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