Crypto start-ups build alternative Swiss finance system
The value of bitcoin is skyrocketing but Swiss banks have no appetite for cryptocurrencies, citing the risks of bursting bubbles and criminal activity as a reason to stay clear. A new breed of start-up is filling the void, setting up an alternative financial ecosystem in Switzerland.
However, they are likely to run into quite some resistance from the traditional financial players in Switzerland.
The likes of SCX Exchange, Smart Valor, Melonport, Lykke, Swissborg and Crypto Finance appear to be timing their arrival to catch a wave that has propelled bitcoin through the $10,000 (CHF9,900) and $15,000 barriers in a matter of days.
They will join the “old” guard, Bitcoin Suisse and Bity, which have been servicing the Swiss crypto market for the past four years. The new players promise to bring competition with new funds and exchanges, wealth and asset management services and a gateway to alternative investments for the person on the street.
“The more alternatives you have, the better it is for the ecosystem,” Lucas Betschart, president of Bitcoin Association Switzerland, told swissinfo.ch.
Some disruptors come with bold claims. “Our vision for the future of financial markets is where an ‘average’ person has the same power as the largest banks, hedge funds and financial ‘insiders’: complete democracy in finance,” co-founder of crypto exchange Lykke, Anton Golub, says in a Linkedin post.
But the established banking system in Switzerland – perhaps unsurprisingly – is doing its best to make sure such grand ideas don’t get very far off the ground, according to Bity founder Alexis Roussel. Bity was nearly sunk before it started, when a bank pulled out of a promise to provide the company with banking services.
It was only the intervention of the cantonal authorities that persuaded the Neuchâtel Cantonal Bank to accept Bity as a client, Roussel says.
“The established banking system appears to be working against the cryptocurrency market in Switzerland,” he told swissinfo.ch. “Some smaller banks may be willing to provide services, but they get threatened by larger competitors that if they accept crypto, then the big banks won’t do business with them anymore.”
This is tantamount to a violation of the Swiss anti-cartel laws, Roussel complains. He adds that there is a large slice of hypocrisy in this attitude. Why was Swiss Federal Railways allowed to provide bitcoin services from ticket machines unhindered? “This is a case of double standards,” he says.
Regulatory holy grail
Lykke says it is applying for banking licences in Switzerland and a range of other countries. SCX Exchange says it has an unnamed Swiss bank lined up as a partner next year, which will “lend” its banking licence to the start-up. Other crypto financial service providers are looking into the same arrangement. Until then, some have to make do listing as a self-regulated organisation – meaning they cannot hold client deposits.
Another nascent crypto start-up, Mt Pelerin, will only launch once it has a banking licence and views approval from the Swiss financial regulator in the next 12 months as its holy grail.
“The problem today is that a lot of people want to operate in a grey zone to avoid the regulator. The grey zone will not remain grey forever. If the regulator comes to you, the relationship is not going to be a good one,” says boss Arnaud Salomon.
The Swiss regulator has given ample warning that crypto services, depending on what form they take, may end up meeting securities, banking and anti-money laundering laws.
But that has not put off start-ups who have been buoyed by the gold rush for cryptocurrencies.
“There are lots of new people buying bitcoin because it’s becoming easier and easier – you just have to go to an ATM. Instead of trading in stocks, people are buying up cryptocurrencies,” says Betschart.
In the view of the crypto community, consumer power will win the day, forcing the traditional banking system to accept what they see as the inevitable transition to decentralised currencies. This theory will test the belief of Swiss banks that the whole movement will burst into an ugly mess for crypto investors.
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