By Hana Skreta, Principal, Zurich
The city of Zug in the greater Zurich area has been dubbed ‘Crypto Valley’ since the fintech boom there started back in 2013. Bitcoin Suisse, Ethereum and Monetas were established around that time and since then numerous other companies with international profiles such as Consensys, Lykke and Xapo have settled in and around Zug. SIX group (the parent company of the Swiss Stock Exchange), currently developing an integrated trading infrastructure for digital assets using blockchain technology and relying on digital ledgers, is also there and the region has a buzz about it that is difficult to ignore. The signs are that this isn’t losing pace. As of last year, research data by CV VC showed that the total number of companies in Crypto Valley alone is 919, employing over 4,700 people. The top 50 companies in Zug employ 776 employees. Crypto Valley now boasts 11 ‘Unicorns’ (projects valued at more than $1BN) compared to 6 in the last report.
Switzerland is historically one of the most successful financial centres in the world and this has naturally been a major influence in paving the way for the fintech innovation the Greater Zurich area has seen. Almost a quarter of the world’s financial assets are managed in Switzerland and the financial sector has long been the backbone of the economy. The focus is expanding in the country, with companies moving in excelling in fields such as computer science, material science, biotechnology and pharmaceuticals, but still Switzerland remains a financial powerhouse. Jon Lee, Senior Portfolio Manager at G20 Digital comments “Switzerland is the ideal jurisdiction given its strong privacy and intellectual property laws. It has attracted a lot of innovation and talent to Switzerland.”
Switzerland has actively worked in recent years to deliver legislation that provides support to the crypto industry. Where some other financial centres globally are still wrestling with crypto understanding if and how to regulate the market, the Swiss have clear guidelines that are principal based and technology neutral. Choosing a bottom-up rather than a top-down approach to regulating new innovation – following the principle ‘to regulate as little as possible and as much as necessary’ the government has taken a pragmatic and forward thinking approach to its guidelines. Zurich is recognised globally as an established financial centre, so the infrastructure and expertise is unquestionably able to support the rapid fintech growth. Lee does however comment “Switzerland cannot do this alone and globally, regulations around digital assets need to be adopted. Larger companies and institutions need a legal framework to enter this space.”
Back in 2018, Johann Schneider-Ammann, economics minister, told journalists Switzerland wanted to become a ‘crypto nation’. Known as a global leader in technical regulation, the government recently passed new DLT and digital asset focussed regulation. In brief, the DLT act is drawn up as a blanket act adapting various other federal laws so that Switzerland can continue to develop as a leading, innovative and sustainable location in the blockchain and DLT market. It enables the introduction of ledger-based securities that are represented on the blockchain. Securities are created when entered in an electronic register that meets certain requirements regarding functional safety and integrity, as well as transparency of information. Entries in the electronic register then work in the same way and enjoy the same protection as traditional securities. These law changes increase legal certainty regarding the transfer and holding of digital assets from a Swiss law perspective and therefore foster the general adoption of the technology as a new way of issuing financial instruments. This not only provides comfort for fintech firms and fund managers, it also vitally provides comfort for investors, who are wrestling with the benefits and risks involved in beginning to invest in crypto. Lee comments “I believe Switzerland is at the forefront on cryptocurrency regulations. Providing clear and stable guidance on digital assets to allow companies to navigate the new asset class. This has contributed to the development of the Crypto Valley eco-system where it has allowed local start-ups to be founded and foreign companies to be setup.”
The country’s further education system also supports innovation and free thinking, and blockchain incubators and accelerators are also expanding in the Zug area. Lee’s own career path has incorporated both tech and finance “I studied Computer Science at university but was a trader throughout my professional career. So, when I discovered cryptocurrencies, it was a perfect opportunity to bring both disciplines of technology and trading together that attracted me. The area of FinTech is a space where technologists and traders are working together to discover new opportunities.” The talent pool available in the Greater Zurich area is outstanding and the culture ecosystem encourages collaboration. Universities like the ETH Zurich, the Institute of Financial Services Zug, or the University of Zurich’s Blockchain Centre are now collaborating with blockchain start ups to create exclusive courses to foster the next generation of developers and engineers in the crypto space.