The Swiss Digital Asset and Wealth Management Report forms a new reference publication for the financial industry in Switzerland. Based on 100 interviews, it provides a picture of the Swiss "Digital Asset" ecosystem with its various sub-categories.
Digital assets and "tokenization" are on the rise. Especially in recent months, record-breaking funding rounds, innovative product launches and a growing interest in new financial products have dominated global news cycles.
To better grasp the Swiss ecosystem around digital assets, investment specialist CV VC, in collaboration with the Swiss Blockchain Federation and Alexander Brunner, is publishing the "Swiss Digital Asset & Wealth Management Report" for the first time.
Tipping point for digital asset
An investor note penned by Morgan Stanley’s wealth management unit in March 2021 summarized the rise of digital assets and cryptocurrencies neatly: “Our recommendation is that investors get educated and consider how and whether to get exposure to this burgeoning asset class in their portfolio.”
Investors entered the digital asset and crypto space at a rapid pace in 2021 as cryptocurrencies and digital assets moved in early 2021 from something easily dismissed as hype (or worse) to a nascent and exciting new asset class. Digital assets are clearly here to stay, as large Swiss and US banks are working behind the scenes on a digital asset offering and traditional hedge-funds start building exposure. Many service providers confirmed that 2021 was the tipping point for the acceptance of crypto currencies and digital assets: The client demand had become too large to simply brush aside. Even the mosre discerning and critical Financial Times came to the conclusion in May 2021 that bitcoin and crypto are here to stay.2 Bitcoin and its brethren entered the Zeitgeist in 2021.
Strong Swiss ecosystem
Since the emergence of the Crypto Valley in 2013, Switzerland has developed an institutional and regulated digital asset infrastructure that is leading the way internationally. Today, the ecosystem counts more than 50 companies offering institutional-level services and providing much-needed choice to professional investors.
The combination of technology and finance in the form of digital assets has super-charged innovation from finance to the arts. From the initialcoin-offering (ICO) craze in 2017 to decentralized finance and non-fungible tokens, buoyant crypto prices have given a strong impetus to widespread experimentation.
On the flip side, many established financial institutions are concerned with a perceived lack of regulation, illicit behaviour and the risk of a heavy-handed regulator. Regulators in Europe and the US have recently started to look more closely into the various crypto and digital asset offerings. It is clear that the entire ecosystem is moving to a more regulated future, even though this will take time and solid knowledge from the regulator’s side. The Swiss regulator FINMA has been at the forefront of this development, giving Switzerland a clear head-start. Switzerland has a diverse and rapidly maturing ecosystem with many wealth managers, asset and fund managers and private banks expanding their offerings.
Larger banks preparing
The large Swiss banks, important global custodians for financial assets, are still mostly absent in early 2021. Their approach seems to be to “wait-andsee.” This was due to regulatory concerns as well as the lack of knowledge and, in turn, commitment. Interestingly, the smaller private and cantonal banks, who are closer to their private clients, are making headway, rolling out various digital asset offerings. Many providers of digital asset services confirmed that large institutions are preparing for a digital asset offering behind the scenes. The digital asset train left the station!
Venture capital funding growing
Switzerland has a rich seed and angel investor community that funds many amazing startups. However, in order to reach global scale and scale fast, a large pool of later stage capital, termed scaling capital, is required. As tech entrepreneur and investor Francisco Fernandez pointed out, large pools of growth capital for scale-ups are missing in Switzerland. This is clearly a disadvantage in comparison to the buoyant and highly active US venture capital sector.
Global competition strengthening
Switzerland is in strong competition with other financial hubs such as New York, London and Singapore. As a fund domicile Switzerland is small in comparison to Luxembourg, Ireland, the UK, the US or Singapore. The lack of scale is clearly a stumbling block. A trade show of US digital asset managers and venture capital firms in March 2021 showed that the US has a strong homegrown digital asset investment industry that is expanding globally. The US can leverage its strong venture capital ecosystem, their crypto exchanges from Kraken to Coinbase and the investment strengths of hedge-funds with the likes of Skybridge Capital or Bridgewater Associates. Switzerland has a hard time competing with the scale and depth of the US financial markets. However, what the US is lacking are clear regulatory and taxation guidelines, which create uncertainty for any incumbents or new players in the digital asset ecosystem.
Switzerland staying at the top
The recent EU Blockchain Ecosystem Development Report states: “Switzerland is one of the most advanced nations when it comes to blockchain and crypto-assets, not only in Europe, but also globally. It has been called the ‘crypto nation’ and is home to the world-famous ‘crypto valley’ of the Zug canton."