Fear reigns in Zug Crypto Valley

Sarah Frattaroli and Nicholas Imfeld

“I don’t trust anyone here right now,” an insider tells Blick. The person knows very well the Zug crypto valley. An ecosystem of around 1,200 blockchain companies stretching from central Switzerland to Liechtenstein since it was founded in 2015.

Blick has spoken to several experts from the Valley over the past few weeks. Your expressions paint a picture of fear. The bankruptcy of crypto exchange FTX in early November shook the Swiss cryptocurrency Mecca with its 6,000 employees. Nobody wants to accept this in public. In the media, executives remained optimistic even after the FTX bankruptcy, but behind closed doors the mood is different.

Crypto disciples are nervous not just in Switzerland but all over the world. Fear: If another major trading platform crashes, the entire card house may collapse. Bankruptcy rumors continue about Singapore-based crypto exchange crypto.com. However, other players that are not on the agenda are also defined as black boxes by industry professionals. “Many crypto platforms are focused on growth rather than risk management and accounting, making them vulnerable to liquidity and credit crises,” says İpek Özkardeskaya, 36, an analyst at online bank Swissquote.

Smart Valor down 80 percent

Crazy rumors are also circulating in Zug these days. The name of Olga Feldmeier (44), one of the figures of the scene, continues to fall. Nicknamed the “Swiss crypto queen,” the Ukrainian was one of the first to predict that after the FTX scandal in November, the local crypto industry would emerge from turbulence as a crisis winner. She made sure that her own crypto trading platform, Smart Valor, would not be affected by the crash. In Zug you just shake your head about it. “Those who are the loudest to say that they are doing well right now are probably not doing very well right now,” says a long-time industry expert.

Is Smart Valor the next expensive bankruptcy in the crypto space? In fact, shares of the Swiss crypto trading platform have dropped 80 percent since its IPO earlier this year. According to the financial report, Smart Valor made a CHF 1.2 million loss in the third quarter alone. According to the platform’s own statements, it has 70,000 customers. You exchange Swiss francs for Bitcoin through Smart Valor and vice versa. In the third quarter alone, customer transactions reached CHF 30 million.

FTX risky invested its customers’ money and made billions. Feldmeier assures Blick that with Smart Valor there is no such danger: “It is not possible to mix Smart Valor with funds such as FTX. Client funds are kept in separate accounts.” So far, Feldmeier has kept the exact location of the funds to himself, accusing him of “She is not transparent and avoids such questions in public”.

Smart Valor does not compete with the industry standard

Feldmeier doesn’t want to let it collapse on him. Opposite Blick, he made public for the first time in which bank his customers hold their Swiss francs. “At Bank Frick from Liechtenstein, in a separate account designated for client funds only.”

To prevent future cases like FTX’s, more and more crypto exchanges rely on the so-called “Proof of Reserve”. They reveal their reserves and show that they are solvents. Within weeks, this method had become the industry standard.

Smart Valor doesn’t do that. Feldmeier describes the model as “a pointless exercise.” The model is inevitably incomplete, as crypto trading platforms only disclose how much assets and liabilities they hold in cryptocurrencies and not in traditional currencies. “Only a complete balance sheet, according to recognized accounting standards, can provide a true view of liquidity, debt and customer deposits,” says Feldmeier.

Sexism against Feldmeier?

As a listed company, Smart Valor is actually obligated to publish its annual figures. Feldmeier was one of the first to manage to list crypto companies on the exchange – this requires meeting high regulatory requirements. “It brought a lot of jealousy, it’s understandable,” says Feldmeier. This is how he explains that crazy rumors are circulating in the industry about him.

A certain sexism shines through in some of the people Blick speaks to. The fact that Olga Feldmeier is a woman who likes to talk publicly about her success in the crypto business doesn’t seem to be well received everywhere. This is also the impression of Daniel Gutenberg, a well-known crypto investor. As Blick confirms, he initially made a five-figure investment in Smart Valor. Feldmeier is one of the very few people in the Zug crypto valley who not only burns money, but is already making a profit.

Bloodletting on Bitcoin Suisse

There is also a lot of talk about Bitcoin Suisse these days. The crypto service provider, which was one of the first in the Zug Valley in 2013 and has now become one of the key players, has bled behind it in key positions. Be it chairman of the board, CEO, legal or marketing director, they have all been replaced in the last twelve months.

This is why Bitcoin Suisse is reacting to 2021, when the Swiss Financial Market Supervisory Authority (Finma) refused to grant it a banking license. Typically, FINMA does not comment on attempts to obtain permission, but in the case of Bitcoin Suisse, the supervisory authority has sent a media statement. At that time, the most important reason for the rejection of the application was “signs of deficiency in the money laundering defense mechanism”. In short: Bitcoin Suisse’s compliance department was not professional enough for Finma.

“We have strengthened our governance and processes and intensified our collaboration with the responsible regulatory authorities,” Bitcoin Suisse spokesperson Verena Schwarz said on Blick. “We currently employ around 30 people in risk and compliance.”

All in the same boat

Bitcoin Suisse is still targeting the banking license, according to its own statements. It has now been realized that only crypto experts are not needed for this. Hence the many departures in the last twelve months. Bitcoin Suisse filled the positions with experienced bankers from the traditional financial centre. According to Schwarz, bloodletting is “not a sign of uncertainty, but a sign of further planned development and the company’s adjustment to changing market conditions”.

Despite rumors to the contrary, the FTX bankruptcy did not affect Bitcoin Suisse. “Our business model is based precisely on protecting client assets from these types of events,” Schwarz says. “So client funds were never affected in connection with the collapse of FTX.”

The crazy rumors about Olga Feldmeier and Bitcoin Suisse show how great the uncertainty in the Zug crypto valley is these days. Because even though blockchain companies want to emphasize that they are not very interested in speculative cryptocurrencies, in the short and medium term, everyone is on the same boat.