Switzerland’s Crypto Valley not quite on its deathbed

The city of Zug is determined to keep the blockchain sector buoyant, having invested a lot of faith in its future. swissinfo.ch

“The report of my death was an exaggeration.” That was the reputed response of Mark Twain on hearing that a newspaper had mistakenly printed his obituary. Are reports of the imminent demise of Switzerland’s blockchain sector also overblown?

Nearly 80% of 203 firms responding to a Swiss Blockchain Federation surveyExternal link have warned of imminent bankruptcy. That would carve a huge hole in the 800+ firms and 4,000 employees that reports say make up the Swiss blockchain sector.

This seems to fly in the face of numerous reports of growth and innovation, such as Crypto Finance’s $14.5 million fresh funding, the impending funding round of Bitcoin Suisse, Mt Pelerin and ID Quantique successfully testing a quantum technology crypto storage safe or AlgoTrader launching its digital assets trading platform WIRESWARM.

Nym Technologies has unveiled an “NSA snoop-proof” decentralised platform to build applications in privacy. The SIBEX peer-to-peer cryptocurrency trading platform appears to be building up a head of steam, Gentwo’s business of securitization of digital assets is expanding whilst the “decentralised” Tomahawk venture capital fund has just launched in Switzerland.

Blockchain start-ups are facing the same pandemic problems all young firms. Companies only qualify for a CHF42 billion state bailout scheme if they have generated revenues, although an extra CHF154 million has been made available in federal and cantonal funds for start-ups.

There’s even talk of a CHF100 million public-private venture fund being set up to invest in blockchain start-ups in Zug – a sign of just how much the canton has invested its hopes into the industry.

Talk of Crypto Valley turning into “Death Valley” is premature, says German Ramirez, co-founder of marketing firm Relevance House. “It’s normal that 80% of start-ups fail in any industry. That’s not particularly connected to coronavirus. It’s part of the game that entrepreneurs should be aware of before they even start.”

Ramirez says the pipeline of new projects is slowing along with investor risk appetite. But he is not alone in pointing out that there will be opportunities for new innovations, such as blockchain, with the post-Covid world crying out for digital solutions.

The modus operandi of the crypto scene does not include surviving on states handouts. (Crypto Valley Association President Daniel Haudenschild).

Undoubtedly coronavirus will cause pain. Technology start-ups are facing a dearth of venture capital while some collaborative projects with established industries are being suspended or cancelled.

The next few months will witness a harsher environment of natural selection. Some start-ups will be plain unlucky, hitting the pandemic just as they were looking for new funding. André Wolke, co-founder of the Validity Labs consultancy firm, says others will fail because they don’t have a solid business model – innovations with no real-life use case or that are too revolutionary for the market.

Hardened by adversity

Daniel Haudenschild, president of the Crypto Valley Association, says the sector has developed a hardened garage start-up style mentality after absorbing repeated blows over the years. This includes being frozen out by many banks – an issue when it comes to asking those same banks for emergency loans right now.

“People in this space truly believe in what they are doing. If one project fails they will just pick up again with another one. We are not going to see a mass exodus from the ecosystem,” he says.

Bailouts are welcome, but hardly fit in with the spirit of decentralisation. “The modus operandi of the crypto scene does not include surviving on states handouts – we are not a state-sponsored industry.”

Thomas Meister, general manager of the Trust Square co-working and event space in Zurich, says Covid-19 has “accelerated” the financial pressures start-ups usually face during their first three years of existence. This means entrepreneurs will have to adopt a “different mind-set”, going into semi-hibernation or re-thinking whether their services will still be relevant in the post-pandemic world.

But he points out that start-ups are having a rough time of it across all sectors, while some industries, such as sporting or entertainment events, are in a worse state that blockchain.

Trust Square itself has at least been thrown one lifeline, as a prominent US tech firm (which cannot yet be named) has recently signed up to occupy significant office space at their new premises.