Crypto needs to be a ‘hole’ lot more Swiss
Turn away from Gary Gensler and the US SEC’s soap opera, and look to Switzerland for guidance instead
Midjourney modified by Blockworks
Switzerland is equal parts fierce independence and buttoned-up punctiliousness. That’s what makes it the best place in the world for crypto.
In Switzerland, sensible guidance has enabled traditional industries to support crypto enterprise and helped to create an attractive regulatory safe haven for Web3 firms (including the SEC’s mortal foe, Ripple).
While the US is wrestling with the Schrodinger-esque paradox of whether a cryptocurrency is a security, commodity, both or neither (does it depend on who’s looking at it?), the Swiss government has already self-assessed the legal framework around crypto back in 2018.
Switzerland then decided to improve upon their crypto regulation by introducing the Law on Distributed Ledger Technology (“DLT-Act”). In force since 2021, the DLT Act allows tokenization of all sorts of legal rights (e.g., shares of SMEs, bonds, public securities), clarifies important legal questions around tokens (e.g., treatment of tokens in bankruptcy) and introduces the possibility to generate liquid markets outside traditional stock exchanges.
Swiss financial market regulator FINMA not only provided clear regulatory guidelines on the treatment of tokens (distinguishing payment, utility and asset/security tokens as well as stablecoins), but also voiced its thoughts about more subtle issues regarding decentralized projects over two years ago. FINMA highlighted the importance of distinguishing “genuine DeFi applications” from those who are “decentralized in name only,” clearly suggesting that the latter fall within TradFi market regulations, but not the former.
That sort of sensible guidance has encouraged innovation and adoption in Switzerland’s private and public sectors.
For example, iconic bank Credit Suisse (recently acquired by rival iconic bank UBS) partnered with the Swiss Football Association to manage sales of NFTs for the Swiss women’s national football team via Credit Suisse’s online banking app.
Meanwhile, two state-owned banks — PostFinance and Luzerner Kantonal Bank — have partnered with private crypto bank Sygnum to launch crypto trading and custody services.
In a message to customers, PostFinance uses the regulatory oversight of FINMA as a selling point, saying the bank’s “experience in regulatory compliance [makes] crypto trading more secure and trustworthy.”
In the Canton of Zug, the birthplace of Ethereum and lynchpin of the famed Crypto Valley, authorities recently raised the maximum amount of taxes one can pay using crypto (Bitcoin or Ether) to 1.5 million Swiss francs per transfer.
While other jurisdictions are still trying to figure out whether they want to jump on the crypto train or not, here in Zurich thousands of people board literal crypto trains every day. (Well, public trams actually, that are clad in livery sponsored by mainstream crypto exchange SwissBorg.)
And if you’re in Switzerland and feel like buying or selling crypto, you have access to a network of dozens of crypto ATMs that support not only bitcoin, but also ether, litecoin and monero.
The list could go on. Now, there may be more exciting topics than regulatory distinctions and public-private partnerships, and there’s no doubt that Wild West-style speculation has been key to early adoption and has changed the lives of many crypto users. (Some even for the better!)
But in order for institutions to embrace DeFi, clear regulations and public sector support are absolutely necessary.
The wave of applications for bitcoin and ether ETFs, and the gravitation of traditional finance to blockchain tech (often brokered by crypto entities such as Chainlink and Polygon) are early signs of a massive rising tide that will lift the potential of DeFi far beyond day-trading altcoins and gambling on memes.
Consider the sheer magnitude of institutional resources. Megafirm BlackRock alone has almost $9.4 trillion in assets under management, dwarfing the total combined market cap of cryptocurrencies, as of today at $1.1 trillion.
Crypto market observers are forever speculating about new sources of liquidity to fuel the next bull run. When it comes to funding, institutional size is size.
Of course, Switzerland doesn’t have a monopoly on common sense or crypto.
The United Arab Emirates has also been proactive in regard to crypto regulations with the result of fostering a vibrant and growing business ecosystem. Swiss institutions like Julius Baer have taken notice, as the private bank chose Dubai as its target for its first major push for digital assets beyond Switzerland.
At its best, the crypto market is an expansionary and inclusive one, and not a player-versus-player game. The same goes when you’re looking at the global financial system as a whole.
Still, if the goal is to onboard the world’s population into DeFi, it would help if some other countries, and their regulators, began to act a bit more Swiss.
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