Even cantonal banks seem to be having a field day as digital assets start to penetrate the domestic retail market, leaving first-mover business models behind.

The last two years in crypto-finance feel much more like two decades. In other words, more than enough time to establish a few basics.

At the start of 2022, Sam Bankman-Fried was a celebrated market guru and leader of FTX, the world's second-largest exchange for digital assets. In November last year, the disgraced founder was convicted of a multi-billion dollar fraud and he currently faces up to a century in jail in the US.

High Opportunity Costs

It was only two years ago that the market for tokens and coins experienced the deepest of so-called crypto-winters. But then, in 2023, Bitcoin rose by 160 percent in value. Not only that. In 2022, Wall Street did everything to belittle the pioneering digital coin, saying it was speculative. But last week they stood in line as the SEC approved 11 Bitcoin spot ETFs.

And now Bitcoin Suisse, one of the first in the domestic digital asset market, is throwing the work of the last two years out the window by deciding to withdraw its application for a Swiss bank license. As finews.com reported, the broker makes most of its money by trading and staking digital assets –and the opportunity costs in the current market were simply too high.

Cantonal Banks

While undergoing the licensing process, it wouldn't have been able to fully participate in the current bull market for tokens and coins. Clearly, it didn't want to do that and lose the opportunity it saw after two difficult years. 

However, that wasn't the only factor that prompted it to make that decision. The current market situation also played a role. Management at the fintech is seeing crypto-banking services increasingly being offered by traditional financial industry players. «In the meantime, cantonal banks also provide them. The Swiss market for crypto-banking services is getting narrower», Dirk Klee, Bitcoin Suisse's departing CEO, told finews.com.

Nearing Finish Line

As a matter of fact, the mass adoption of crypto in the retail market started last autumn. An increasing number of financial institutions are offering crypto services with the help of regulated specialists such as Sygnum, Amina (previously Seba), or Deutsche Boerse subsidiary Crypto Finance. The Zuger and St. Gallen cantonal banks are the surprising leaders in the traditional banking sector, although they are not likely to remain by themselves for long.

According to market experts, about ten Swiss institutes are nearing the finish line when it comes to providing such services, and that includes the country's largest institution.

But when it comes to UBS, the activities are understood to be in a more international context in that it will let high net worth clients trade the newly approved Bitcoin ETFs under certain conditions.

Not So Urgent?

In that context, it is interesting to see how crypto-banks Sygnuma and Anima position themselves given they are currently fully occupied with their roles as suppliers to traditional institutions as they would also be impacted by a shrinking market.  All the others will have to pay attention to the regulatory changes, particularly those who still want a Swiss banking license.

Finma recently created more legal safeguards when it comes to staking by non-banks. However, the planned capital requirements could limit business and taking that option is probably not all that appealing to crypto actors right now.

Current Licensing

Also, in neighboring countries, efforts are underway to segregate the crypto business from banking. In the EU and the UK, the prevailing view is to hand out special crypto licenses rather than treating the products, and the providers, under the banking supervision umbrella.

Switzerland, which has been extremely crypto-friendly in recent years, could go the same way in the future. Apparently, there are considerations to use the current fintech licenses for blockchain business models in that regard.