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Cryptic investment Swiss super-rich want slice of cryptocurrency boom

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More of Switzerland's wealthy people see cryptocurrencies as a key to increased wealth

(Keystone)

Who are the investors eager to bet on bitcoin, and what plans do they have for their newly minted digital assets? 

“There is only one type of crypto investor – one who wishes they had bought more,” Bitcoin Suisse founder Niklas Nikolajsen told swissinfo.ch. The Zug-based exchange, brokerage and advisory service set up in 2013 has seen demand explode in the last 12 months.

“The majority of our clients are high net worth individuals [millionaires or billionaires],” said Nikolajsen. “They have discovered that crypto is a good investment to include in their portfolios. No other asset class has performed as well recently.” 

The main cryptocurrency players in Switzerland are companies that specialise in the new digital asset - but also increasingly, the ultra-wealthy or institutional investors, including some mainstream banks. 

Added to them are a growing list of smaller retail clients and the niche group of traditional Swiss companies who use bitcoin to conduct a small amount transactions in cryptocurrency-friendly countries – mainly in Asia. 

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A line chart showing the rising value of bitcoin this year

Bitcoin value

Earlier this year Japan recognized bitcoin as legal tender for payments, making it easier for consumers to spend them in the high street. Some Chinese investors are reportedly using cryptocurrencies to get around restrictions on sending assets out of the country. For South Americans, bitcoin appears to be a hedge against volatile fiat currencies, inflation and unstable governments.

Boom or bubble?

But Swiss investors are largely jumping on the bitcoin bandwagon to cash in on the spectacular growth in value, according to brokers. Worth only a few cents when it was launched in 2009, a single bitcoin has been trading recently at between $4,000 and $5,000 - with astonishing growth in the last 12 months. 

In addition, a number of other cryptocurrencies - or tokens - such as Ethereum or Ripple have also exploded onto the scene and are seeing significant value growth. Opinion is still sharply divided on whether cryptocurrencies are the real deal, here to stay, or a bubble fueled by irrational market behavior.

The burgeoning cluster of start-ups in Zug’s Crypto Valley bring a steady stream of cryptocurrencies into Switzerland. Globally, such start-ups have generated well in excess of $1 billion from crowdfunding - or Initial Coin Offerings (ICOs) - this year. A few firms set up shop in Switzerland, but others are pouring hundreds of millions of dollars raised by ICOs into Swiss-based foundations.  

This trend is providing lucrative business for consultants, lawyers and other specialists.

Bity by bug in western Switzerland

Business has also been booming at the Neuchâtel-based cryptocurrency exchange Bity, which targets both institutional and smaller retail clients. The company’s target of increasing trading volumes five-fold this year has already been exceeded by a large margin, according to co-founder Alexis Roussel.

It is not just the number of clients that has changed, it is the type of investor too. “Until recently we had individuals from financial institutions buying bitcoin because they were working on crypto projects at their company and wanted to see how it worked,” Roussel told swissinfo.ch. “This year it is the institutions themselves that are investing in cryptocurrencies.”

Cryptocurrency: a glossary

Bitcoin: The most-used type of digital currency, invented in 2008 by a person with the moniker Santoshi Nakamoto. Accepted by hundreds of online vendors worldwide, including Amazon and Virgin.

Cryptocurrency: A form of money that uses cryptography to control its creation and management

Blockchain: The public digital ledger keeping track of all bitcoin transactions

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Switzerland’s mainstream financial sector is starting to take notice of clients’ desire to hold cryptocurrencies in their portfolios. Last year, Vontobel launched a tracker certificate that allowed people to invest in bitcoin without the need to physically buy the cryptocurrency. It proved so popular that in April Vontobel allowed the volume of investments to increase from CHF1.7 million to CHF18 million.

Falcon private bank has teamed up with Bitcoin Suisse to allow clients to invest in cryptocurrencies. Online trading platform Swissquote swiftly followed suit in a tie-up with Luxembourg exchange Bitstamp. This recent development has opened up the cryptocurrency door to small retail investors. 
The Zug-based Crypto Fund is due to launch later this year, which will also enable people to invest in cryptocurrencies.

Arm’s length

In common with many banks, Bordier is playing safe by pointing crypto-enthusiastic clients to Vontobel’s tracker certificate or other external investment vehicles. The Geneva-based private bank has reservations about bitcoin, but sees potential in the underlying blockchain technology that stores and transmits data.

To this end Bordier is in talks with a “leading Swiss cryptocurrencies platform” about a possible tie-up and is assisting a cryptocurrency exchange to set up a fund to enable clients to invest in start-ups in the sector.

But a swissinfo.ch survey of other Swiss financial institutions found there is little chance of a wholesale plunge into cryptocurrencies. Even Vontobel, Falcon and Swissquote are maintaining an arm’s length distance as neither allows clients to deposit or withdraw cryptocurrencies on their platforms.


Cryptocurrency, cryptoasset or token?

Since bitcoin emerged in 2009, some 900 other forms of digital tokens have sprung up. However, not all are intended to act as an alternative form of currency. Ethereum, for instance, can be used to store and transmit a wide range of data over blockchain, such as legal contracts or land deeds.

Most of the world’s regulators have yet to decide whether such tokens are a currency, security, commodity or other asset class. This makes it hard for banks to advise clients on investment strategies. 

Companies and experts in the sector have taken to re-labelling these tokens cryptoassets, rather than cryptocurrencies, because they have such a broad range of potential uses.

Bitcoin remains the most highly valued token with a global market capitalisation of around $70 billion – and rising.
To put this into perspective, there are around $65 trillion worth of dollars in the world at the moment and $1.4 trillion of Swiss francs, according to the World Bank.

Another issue putting many financial institutions off advising clients to invest in cryptocurrencies is the number of highly publicised scams and hacks, along with volatility in crypto prices and an uneasy feeling that they might be a fad – or even worse, a bubble about to explode.

As one independent asset manager, who did not wish to be named, put it: “It’s hard to recommend an asset to a client that produces no income or dividend and is almost impossible to value with any accuracy.”

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swissinfo.ch

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