Despite naysayers and critics, the area known as "digital assets" refuses to go away. And a country that appears to be trying to encourage the space is Switzerland. While Swiss banking has been under an unflattering spotlight, the cryptoassets sector appears to retain plenty of energy.
Whatever else one can say about the Swiss financial services industry right now, it isn’t boring. The demise of Credit Suisse – in the process of being acquired by UBS – hit the image of a state more accustomed to being seen as a solid place. But this independent-minded country has had to reinvent itself before – look at its wristwatch industry – and the same may happen in finance. And that includes what are known as digital assets. A question is to what extent can such innovation help the country win back some of its edge?
In cantons such as Zug, there’s the “crypto valley” (an office block rather than something more scenic) in which scores of firms, operating in areas such as blockchain, tokenized assets, smart contracts and cryptocurrencies, operate. The Swiss Financial Market Supervisory Authority, aka FINMA, operates a relatively liberal regulatory regime for the space. In September 2021 it authorised what is called the “Crypto Market Index Fund,” a fund that can be used by qualified investors.
As described by Global Legal Insights, the government’s attitude towards blockchain technology and tokenization of securities is “very positive.” As for cryptocurrencies such as bitcoin, they aren’t yet legal tender – but they aren’t in almost all other countries, anyway. In September 2020, Swiss laws approved the concept of DLT-Securities, which allow rights, claims and financial instruments to be tokenized.
For all the headwinds caused by the 2022 tech stocks selloff, and the collapse of cryptocurrency exchange FTX in the US, Switzerland-based digital assets firms continue to build out offerings so that investors, including high net worth individuals, can tap into the market in a (hopefully) risk-controlled way.
A firm that continues to build is SCRYPT, which was founded in 2019, headquartered in Zug and licensed in the country.
In another case, Switzerland-based Tyr Capital (launched in 2018) is a fan of the Swiss market, and explains why.
“The Swiss wealth management industry has been the biggest allocator into cryptos out of all countries,” Ed Hindi, Tyr’s chief investment officer, told this publication. A reason for this is that Switzerland has a lot of international clients, and they tend to be more open to wealth-protecting/diversification ideas that lend themselves to crypto, Hindi said. “The Swiss regulator, FINMA, has been clearer and more proactive in terms of regulation.”
Tyr has launched Tyr Capital Venture SP, a discretionary hybrid venture capital fund. It offers exposure to long-term returns across a portfolio of liquid tokens and illiquid digital assets (early-stage tokens and multi-stage venture capital equity) with a liquidity horizon of one to three. It also has the Tyr Capital Arbitrage Fund.
As digital assets’ promoters try to take the area more mainstream – and hopefully damp down unappealing volatility – the worlds of Swiss wealth management and a sometimes-mind-bending tech world intersect.
“The wealth that stays in Switzerland is international – there’s a melting pot of wealth. It is typically more attracted to the idea of these alternatives to other forms and value propositions,” Hindi said.
“We are a one-stop shop where advisors and investors can get exposure to different aspects of what the asset class has to offer,” he said.
SCRYPT has a different approach to the digital assets story. It sees itself as a trusted access point to digital assets for institutions – very much a play on making this area more regular, liquid and “mainstream.” The firm was founded by Norman Wooding and Sylvan Martin. Wooding, who came to the space as a hobbyist, ended up making it his business.
“There is a definite shift towards more regulated and compliant entities in the industry. This reflects a growing recognition that regulation and compliance are important for the long-term sustainability and growth of the industry, and it also helps to build trust with investors and other stakeholders,” Wooding told this publication.
Wooding thinks that the Swiss authorities are among the more supportive of this sector.
“Switzerland has taken a forward-thinking approach to regulating the crypto industry, with FINMA being a key player in shaping the regulatory environment. They have been proactive in their approach and have sought to create a framework that supports innovation and growth in the industry, while also ensuring that consumer protection and market stability are prioritised,” he continued.
“The crypto industry has certainly had its fair share of market and regulatory drama over the past year. From stablecoin controversies to the FTX situation to increased regulatory scrutiny. It’s been a challenging time for many people in the industry,” he said. “I think the mood in the sector is generally optimistic and forward-looking. Despite the challenges, there is continued innovation and growth in the industry, with new use cases for blockchain technology and digital assets emerging all the time.”
Wooding entered the space at a young age – a familiar pattern
with startups. “I've been involved in the crypto industry since
2015, back when I was a student studying economics and politics.
I started out as a hobbyist mining bitcoin. I aligned with the
economics, self-sovereignty, and political empowerment it
represented and mining also happened to be a fun way to make
money or ‘earn rewards’ for validating transactions and adding to
the supply of this new 'economy' by participating in the creation
of ‘blocks’,” he said. “After that, I conducted academic research
during my master’s studies on smart contracts in corporate
governance and even taught courses on cryptocurrency and
disruption at the London School of Economics.”