Crypto Valley Roundup – Fall 2021

The Crypto Valley is known to be one of the most “crypto-friendly” regions in the world. But what specifically is happening within the Blockchain ecosystem? The “Crypto Valley Roundup” aims to provide insight and highlights from selected events every two months.

With the first Blockchain companies settling in the area of Zug from 2013 onwards, the term “Crypto Valley” was soon born in reference to the “Silicon Valley”. Thanks to politics and regulation, Switzerland was able to create the necessary legal certainty for a flourishing ecosystem around Blockchain and cryptocurrencies at an early stage.

The local regulator has been active since 2015. Internationally, this is very early for the Blockchain space. Last but not least, the space has enjoyed new company settlements and steady development. The ecosystem has advanced into various industries and the Crypto Valley has also grown geographically far beyond the canton of Zug. So it’s high time to take a closer look at what’s going on.

Despite the increasing integration of cryptocurrencies into the Swiss economy, some politicians are concerned about their use for illegal purposes. First and foremost, National Councilor and SP parliamentary group leader Roger Nordmann spoke out. He believes that blackmailers and other cybercriminals have an easy time with cryptocurrencies. Blockchain transactions are often not attributable to a person, which makes it difficult for the authorities to prosecute. Therefore, the politician wants to ban the use of “anonymous cryptocurrencies” altogether.

This seems to be a non-partisan concern. National Councilor Nordmann’s motion was joined, for example, by SVP National Councilor and IT entrepreneur Franz Grüter. He, too, is of the opinion that anonymous trading of cryptocurrencies must be stopped. Free-standing National CouncilorFrédericBorlotz went even further than Nordmann and Grüter. He did not even rule out a general ban on cryptocurrencies. The motion continues to be hotly debated and encountered resistance from many industry experts.

Unlike some politicians, the Swiss Financial Market Supervisory Authority (FINMA) wants to incorporate the new asset class into the current regulatory environment. The regulator has formally given the green light to SIX Digital Exchange (SDX) to operate an exchange and central securities depository for digital assets. This is the first time in the Swiss financial center that a license has been granted for infrastructures that enable the trading of digital securities in the form of tokens and their integrated settlement.

With this step, FINMA recognizes the innovative potential of the new technologies. To enable serious innovation, it is consistently applying the existing provisions of financial market law in a technology-neutral manner, i.e. according to the principle of “same risks, same rules”. At the same time, it ensures that the protective goals of financial market legislation are preserved.

Another FINMA approval was granted to a consortium of three companies that aim to set up the first crypto fund under Swiss law. The investment fund will allow both institutional and professional investors to participate in the emerging digital asset class. As with traditional investment funds, segregating the assets from the custodian’s balance sheet eliminates counterparty risk for investors.

Qualified investors such as Swiss wealth management banks, asset managers, pension funds and other professional investors who collectively manage several 100 billion Swiss francs in assets have been waiting for such a regulated fund. The passive investment fund tracks the performance of the Crypto Market Index 10, which is managed by SIX Swiss Exchange. The goal of the Crypto Market Index 10 is to reliably measure the performance of the largest and most liquid crypto assets and tokens and provide a benchmark for this asset class.

Central bank digital currencies (CBDCs) are becoming a hot topic internationally. Both the European Central Bank (ECB) and the Federal Reserve have announced clear plans. For several months, the Swiss National Bank (SNB) has also been looking into the subject. A recent study by the central bank examines what advantages and disadvantages the issuance of a blockchain franc would entail.

For the SNB, it is important to understand and observe the innovations, but also to anticipate what it means for the functioning of the financial system. Issuing central bank digital currencies to retail customers results in a transfer of risk from commercial banks to the central bank. Therefore, the SNB is analyzing how different mechanisms to limit risk transfer, such as an unattractive interest rate for retail CBDCs, a volume cap, or preventing the convertibility of cash and reserves, could play out.

Last but not least, the Swiss Post is launching the “Swiss Crypto Stamp” – the first blockchain stamp in Switzerland. It is a digital representation for a physical stamp and will be issued on the Polygon blockchain. The crypto stamp consists of two parts: On the one hand, it is a physical stamp worth 8.90 francs. On the other hand, each crypto stamp contains a digital image associated with it. This digital image shows one of 13 possible subjects, and can be collected, exchanged and traded online.

With the Swiss Crypto Stamp, Swiss Post is also building a bridge between the physical and digital worlds in philately. Like any other stamp, the owner can use it to pay for postage. But the actual crypto stamp is digital. It is a digital collectible in the form of a non-fungible token (NFT).