Bitcoin Suisse is preparing for the next bull market by re-inventing itself as a fully-fledged “crypto asset manager” and wealth advisory firm that caters for an emerging breed of ultra high-net-worth individuals and crypto-curious institutions.
The strategy involves complex efforts by the digital asset gateway to secure a license from the Swiss Financial Market Supervisory Authority (FINMA), Switzerland’s financial regulator, as well as expanding operations into the European Union, the United Kingdom and the United Arab Emirates.
It’s being led by chief executive Dirk Klee, a banking veteran who previously steered the Wealth Management & Investments division of Barclays. Speaking to me in a wide-ranging interview at Bitcoin Suisse’s headquarters in Zug, near Zurich, Klee admitted that recent turmoil in crypto markets – including the collapse of high-profile platforms FTX, Bittrex and BlockFi – has been a “major setback” for institutional adoption. Retail investors lost billions of dollars in the cascading bankruptcies, sending shockwaves through the industry and provoking the wrath of global regulators.
Despite this, Klee said, institutions are looking beyond the pain and focusing on the long-term potential of cryptocurrencies and blockchain technology – meaning a “washout” of bad actors should, ultimately, be a “good thing” for the prospects of mainstream adoption.
“Institutional players have to be safe places,” he insisted.
“So, on the back of the eruptions that we’ve seen in 2022, institutions have sharpened their focus on how to do proper risk management; who are the trusted partners; how deep do I have to go into technical details to understand the dynamics.
“With FTX, all the problems were actually TradFi (traditional finance) problems: misappropriation of client funds; no proper risk management; trading against client interests and so forth. Basic institutional standards were not being met. So I think, now, institutions want to go deeper. They want to do proper due diligence. They want to fully understand how [crypto companies] work; what we deliver; how we’re set up; are we safe. And that’s a good thing. There was hype in 2021 – the market was getting ahead of itself – and the weaknesses of some players were exposed. I believe the washout is a healthy development.”
Klee added that bitcoin – which spiked to an all-time high of nearly $69,000 in November 2021, before crashing below $15,500 last year – has probably now put in a market-cycle bottom. And, he predicted, the next bull run will likely be characterized by “less volatile, more steady” growth, attributing this to a combination of regulatory oversight and the end of bubble-inflating, ultra-low interest rates.
Bitcoin was trading for just over $30,500 at the time of writing (June 30th, 2023), marking a year-to-date gain of 84%.
“Regulators have really stepped into this space,” Klee said, welcoming legislative amendments in Switzerland as well as the EU’s new Markets in Crypto-Assets (MiCA) framework. “They’re providing safe rail guards for wider adoption and access to crypto.
“And the other thing is that, some months ago, [Western economies] left a 30-year cycle of lowering interest rates and cheap money pouring into the next higher-risk asset class … That money is no longer available. Investing is getting tougher for companies in this industry, and we have to prove that we have a sound business model. The actors are becoming sounder on the back of better risk management, hopefully, and the use-cases of the protocols are becoming clearer. The protocols, also, have to prove that they are actually delivering value.
“The hype and the money that flew into the hype has stopped. Now it gets real.”
Paying for luxury watches, not coffee
One popular refrain against bitcoin is that it’s not “real money” because you can’t buy anything with it – and, up to a point, Klee might be forced to concede that argument.
Crypto payments services are still a relatively niche part of the business, paling in comparison to its trading and custody offerings. Although Bitcoin Suisse now facilitates such payments for several hundred merchants – as well as the cantonal government of Zug, which allows residents and local companies to pay their taxes in bitcoin – Klee accepts that uptake “has been slower than many people have anticipated”.
Asked whether he thinks bitcoin will ever become a widely accepted medium of exchange, the chief executive said that can only happen “on the back of broader crypto adoption” by society. Still, the number of merchants signing up to Worldline Crypto Payments, the payments service launched by Bitcoin Suisse and Worldline, grew last year in spite of the downturn – and it’s high-end retailers that are showing the strongest interest.
“The notion of bitcoin as a means of payment for smaller transactions has not come true,” Klee said. “It has not evolved for everyday use like buying a coffee at Starbucks – that’s not the use-case – but it’s very much used in the luxury industry.
“If you stay at the premier hotel in Zurich, The Dolder Grand, or at The Chedi in Andermatt, you can pay your hotel bill with bitcoin. You can buy Swiss luxury watches with bitcoin, or cars in a higher-priced segment … That’s where we are seeing adoption. It’s coming from the crypto natives (people who are well-versed in blockchain technology) who have a lot of crypto and who want to buy things with it. But, again, we rather see it for luxury goods than retail, and generally for higher-value transactions.”
He continued: “I think where crypto payments services will play a larger role, eventually, is in e-commerce and the metaverse. That’s where it’s going to happen. Will it be with your local butcher? Probably not.”
Turning to, by far, Bitcoin Suisse’s main source of revenue – trading and custody services for wealthy individuals, family offices, asset managers and corporations – Klee noted that the company already has clients from around the world, excluding America, but it’s constrained by Reverse Solicitation rules that don’t allow it to target anyone based outside of Switzerland.
“They can reach out to us,” he shrugged. “But we’re not active beyond Switzerland. We’re not marketing or actively targeting clients in these countries.”
That will change under the new business plan, with one foreign subsidiary already established in Liechtenstein – the crypto-friendly, super-wealthy microstate wedged between Switzerland and Austria – and mid-term plans for expansion to the EU, the UK and the UAE.
The Liechtensteiner office should be instrumental in gaining a foothold in the EU, Klee said, caveating: “Again, in a proper, regulated setup. We are reviewing the requirements and preparing for that.” Though not itself a member of the EU, Liechtenstein enjoys unfettered access to the bloc thanks to its inclusion in the European Economic Area (EEA) – a benefit not shared by Switzerland. The UAE is meanwhile fast emerging as the Middle East’s capital for blockchain innovation, attracting offices from a raft of Western crypto companies, including Switzerland’s only certified crypto banks: Sygnum and SEBA Bank.
Unlike those local competitors, though, it’s noteworthy that Bitcoin Suisse hasn’t yet secured a license from FINMA.
Klee attributes that to the difficulty of retrospectively implementing banking rules after ten years of operations. “We’re an existing, large, complex business,” he noted. “So, for us, it’s a longer way to become a fully regulated entity in Switzerland.” Sygnum and SEBA Bank, by contrast, took a “greenfield approach” of building governance frameworks first and onboarding clients second. That’s not an option for Bitcoin Suisse – the country’s oldest and largest crypto gateway – but Klee is determined to add the feather to his cap, arguing it will be a “strong reputational positive” and “help us work better with industry partners”.
As a sign of his determination on that front, he pointed to this year’s joint development of a crypto-compatible banking platform, TCS BaNCS, by Bitcoin Suisse and Indian conglomerate Tata.
And although the FINMA license could be helpful in the UK, Klee hinted that there are bigger hurdles to overcome in that market.
Protecting consumers or stifling innovation?
“While we would be very happy to expand into the UK, we want to make sure that, you know, we’re welcomed there,” he said.
“What I’ve noticed, drawing from my experience in the UK, is that the UK view on crypto is very much driven by consumer protection. The view is, ‘Is this similar to gambling? Is it luring clients into risky investments?’ And I think it’s a fair point to be cautious. But I would also argue that investing in crypto provides a lot of opportunities, especially for people who might have a low amount [of capital] but are able, through crypto, to participate directly in a technology revolution, as I would call it.
“That’s an opportunity that you should not miss.”
Repeated attempts by this reporter to elicit criticism of the Financial Conduct Authority (FCA) – the UK’s notoriously anti-crypto financial regulator – went unsatisfied. The FCA has a longstanding policy of admonishing consumers that they will “lose all your money” if they buy bitcoin. Influenced by these warnings, many UK banks – including Klee’s former employer, Barclays – block their customers from transferring money to crypto companies.
Rather than criticize such practices, Bitcoin Suisse takes a more diplomatic approach – acknowledging the need for risk management while standing by Switzerland’s famously libertarian attitudes.
“Clearly, you have to be knowledgeable and well-guided, and nothing should be hyped,” the chief executive said. “But, in Switzerland, the consumer protection angle has not been the only factor. We are more looking at the innovation, the potential that cryptocurrencies and blockchain can bring, and also the potential of having a competitive edge in financial markets … So if you ask me if the UK’s not quite there yet, I think what the industry has to do is provide more education. Cryptocurrencies need to be better explained. It’s a risky asset class, yes, but there are other risky asset classes, and they have been adopted over time.
“I would just hope that people are free to choose. They should be provided with that opportunity. The real question is, ‘How can you safely access crypto?’ And, if there’s regulation in place, I think that would be a good thing for consumers.”