The Fall of Crypto Valley: How Zug Is Losing Appeal to Other Blockchain Hubs
After being touted as a game-changing cryptocurrency-friendly economy, Switzerland faces a potential brain-drain of cryptocurrency projects as local banks refuse to lend services to the sector, contrary to the government’s push. As reported by Reuters on July 19, 2018, several cryptocurrency projects are departing the European country, famed for its banking industry, as financial services are either disallowed or gradually cut off.
Swiss Banks Back off from Cryptocurrencies
Despite its ethos to stand against banks, the cryptocurrency industry massively depends on banking services for its smooth functioning. A shortage of such liquidity in countries like India and Columbia has effectively killed the local cryptocurrency industry, without the need for a blanket ban such as China’s.
Now, recent actions from Swiss banks are threatening the digital asset sector in the country, and businesses are moving to nearby Gibraltar and Liechtenstein, which offer significant banking support.
The cryptocurrency sector in Switzerland has provided much-needed employment to hundreds of citizens, as per reports. Although the figure is substantially lower compared to the traditional banking sector, observers consider it a “key innovation for the future of global finance.”
For example, Zug was dubbed “Crypto Valley” for its optimal practices towards the development of blockchain technology and has an estimated 300 cryptocurrency businesses in operation. To put things in perspective, the canton has a population of approximately 30,000 people, according to 2016 estimates, meaning one digital asset business for every hundred citizens.
However, Zug’s finance director Heinz Taennler expressed his concerns:
“They may leave if the government does not take steps to give them access to the banking system, without which they struggle to function. All their banking relationships are going to Liechtenstein.”
Taennler emphasized that “hundreds of jobs [have] been created,” and considers every added job to be of vital importance.
Banks Share Concerns
As per reports, Swiss banks express their concerns echoing an omnipresent, and alleged, cryptocurrency issue: The asset class is used to fund terrorism, and investor identities remain perpetually unknown.
Zuercher Kantonalbank (ZKB), the fourth largest Swiss bank, closed the bank accounts of over twenty cryptocurrency businesses in 2017, despite once being a prominent authority to provide services to the sector.
Reports suggest the bank cited concerns of digital asset companies conducting illegal ICOs and potentially breaching local Anti-Money Laundering (AML) laws. Banks additionally claim token issuers do not perform their due diligence on investors before depositing contributions, meaning the primary source of funds remains unknown.
Not all Is Doomed
Banks have reportedly approached Swiss regulators to help them define and implement financial legislation for cryptocurrency businesses, indicating the traditional sector is open to providing their services subject to strict laws.
Interestingly, only “a handful” of Switzerland’s 250 established banks ever offered their services to cryptocurrency firms, especially to deposit ICO funds. The number has since dropped down to two banks at the time of writing.
These are Hypothekarbank Lenzburg, a regional lender located between Zurich and Basel, and Banca Zarattini, a small bank in the predominantly Italian town of Ticino. The latter has self-imposed AML and KYC checks in place which companies need to adhere.
Meanwhile, Bank Frick in Liechtenstein has turned into a Swiss bank alternative for cryptocurrency firms, and it remains to be seen if the trend entitles the tiny landlocked country as the new Crypto Valley.