As of last week, three cantonal banks offer crypto trading. Switzerland's leading retail bank, PostFinance, has also positioned itself. What is striking is the caution of UBS, which is only reluctantly approaching the topic of crypto. Is Switzerland's largest banking institution missing out on the next megatrend?
Over the past year, one Swiss bank after another has entered the crypto business. In addition to the three cantonal banks of Zug, St. Gallen and Lucerne, the first systemically important Swiss financial institution PostFinance has been trading digital assets since February. One candidate remains obviously absent. UBS clients cannot invest directly in crypto assets, nor does the bank offer the recently launched and highly successful US ETFs. A future offering seems equally unlikely.
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Highly critical of Bitcoin and the like
The first prominent mention of Bitcoin dates back to 2017. In an interview with the Neue Zürcher Zeitung (NZZ), the then CEO of UBS, Axel Weber, said that in his view Bitcoin cannot be considered as money. It was entirely subject to market development, no central bank could intervene. This, he argued, was a fundamental design flaw. Weber did not see Bitcoin as valuable or sustainable. As a result, UBS made a conscious decision not to offer crypto assets to its clients. The bank only saw great potential in the underlying blockchain technology.
"Since there is no central bank or issuer controlling the supply of bitcoins, their value is determined solely by demand. Fluctuations in demand therefore lead to huge price fluctuations in both directions. In traditional currencies, central banks are the lenders of last resort who can prevent panic in the market - this is not the case with Bitcoin". - Axel Weber, former CEO of UBS
Over the years, UBS has continued its crypto-skeptic stance. In January 2021, shortly after Bitcoin surpassed its previous all-time high of $20,000, the Swiss bank issued a warning. Due to a large number of client inquiries, UBS felt compelled to comment on crypto assets. The message was clear: Bitcoin is a bubble, could pose a threat to financial stability, can be replaced by a "better" cryptocurrency, adds nothing to portfolio diversification, and carries the potential for total loss for clients. A few months later, UBS sent another message to its clients with the same tone.
UBS stays on its course
Perhaps UBS executives felt a certain triumph during the cold "crypto-winter" of 2022. The price of Bitcoin plummeted from $69,000 to below $20,000, the same price at which UBS warned against investing. Forward-thinking banks seized the opportunity. Throughout the bear market years, numerous reputable institutions prepared to enter the market. In Switzerland, the cantonal banks of Zug, St. Gallen, and Lucerne, as well as PostFinance, led the way among state-owned banks. Overseas, BlackRock entered the market with a spot Bitcoin ETF that is now worth $12.5 billion. Other heavyweights such as Fidelity, VanEck, WisdomTree, Ark Invest and others have also stepped up their involvement.
UBS clients are left out. Only some wealth management clients are allowed to invest in Bitcoin products under certain risk parameters, as revealed by an insider to the crypto news site CoinDesk. Direct investments like those offered by PostFinance & Co. are unlikely to follow. UBS defiantly dodged questions from CVJ.CH. The bank stated that they are closely monitoring developments in digital assets, but are focused on distributed ledger technology (DLT). UBS participated in a funding round of Swiss-French tokenization startup Taurus in February 2023. The bank is also involved in central bank digital currency (CBDC) experiments. However, UBS does not appear to have any interest in actual cryptocurrencies.
More challenges from the Credit Suisse acquisition?
At the end of March, the government urged UBS to take over troubled Credit Suisse after billions in customer withdrawals. "Too big to fail" took on a whole new definition. According to a survey by the Swiss Bankers Association, more than 50% of Swiss citizens fear a potential failure. Could the Swiss Financial Market Supervisory Authority (FINMA) put the brakes on crypto assets to deal with the Credit Suisse situation for now? When asked by CVJ.CH, the regulator denied this. As usual, they do not comment on individual cases. However, it is primarily up to each bank to decide what risks it wants to take. Since February 2023, there is a standardized reporting of activities with crypto-based assets.
However, Swiss regulators are increasingly at odds with representatives of the crypto industry. Last September, FINMA wanted to require banking licenses for so-called staking services. There was a significant outcry, with various associations opposing the regulation. FINMA eventually backed down. Two weeks ago, the Swiss Blockchain Federation (SBF) issued another warning. Specifically, the action group criticized the crypto standards of the Basel Committee on Banking Supervision (BCBS). It remains to be hoped that Switzerland does not squander its competitive advantage in the rapidly growing crypto industry.
