Which Swiss company is making money in crypto? Part 1 of 2
Switzerland’s Crypto Valley is ten years old. It has produced a wide range of business models. A look at various business makes one thing clear: revenues are closely tied to crypto prices.
Stellar rise of crypto prices in recent years made it look temptingly easy to make money in crypto. Crypto exchanges such as Binance or stablecoins like Tether have been minting money. In Switzerland’s Crypto Valley in ten years different business models have emerged. We had a look at them.
Is this also true for Swiss crypto companies? I had a closer look at several business models and found a more nuanced picture.
Profitability is (also) the result of the business model
The interesting aspect of the Swiss crypto ecosystem is that you can observe a breadth of different regulated business models: from crypto banks to cantonal banks and from crypto brokers and market makers to startups.
In recent months, I have talked to CEOs, founders and experts to piece together a picture of the profitability of different business models.
Online trading bank
The Swiss online bank Swissquote has been active in crypto since the ICO boom in 2017. Ever since then they have been building out their crypto offering, extending themselves from B2C to B2B. Besides offering their trading clients more than 40 coins to trade, they have developed their own custody platform as well as in-house crypto exchange. The revenues from their crypto have been following overall crypto market volatility. 2021 for example turned out to be a great year:
Net income from crypto investments increased by over 1,000 percent to 63.2 million Swiss francs in the first half of 2021.[2]
However, two years later in 2023 the situation has changed, as Swissquote’s 2023 report highlights.[3] In the first half of 2023, Swissquote crypto revenues dipped:
Swissquote blames clients’ cautious trading even in higher-risk asset classes such as crypto assets. Compared with the prior-year period, net crypto-assets income dipped by 62 percent in the last semester to CHF 7.5 million from CHF 19.5 million a year ago and CHF 63.2 million in 2021.[4]
Later in 2023 it said:
“Net crypto assets income decreased by 31.9%. 2023 was generally a year of low volatility for the crypto market, particularly in the first nine months. Crypto assets volatility improved in the last part of 2023, mainly driven by excitement around better conditions in 2024.”
As said before, trading revenues rise and ebb with the volatility in the markets, making it an unpredictable.
Private banks
Several Swiss private banks have been active in crypto for several years, slowly building their offering. Their ambition is to attract a younger and entrepreneurial clientele that will slowly become traditional private banking clients or wealthy clients who demand crypto exposure.
Interestingly, several banks nowadays offer crypto-fiat offramps, allowing high-net worth individuals to cash out their crypto and move into fiat (after a strict forensic due diligence process). This has become a very attractive niche offering that requires strong competence and a dedicated team.
The upside is that private banking is a stable high-margin business if done well. Assets normally are sticky as well.
Furthermore, offering business accounts to crypto-companies has also developed into a lucrative business offering due to its higher price than regular company accounts. Again, a lot of knowledge and trained staff is required in order to mitigate risks. This is not a quick win but a considerable investment.
Cantonal banks
Very recently state-owned cantonal banks, such as Zug, St.Gallen and Lucerne, have started to roll out crypto trading offerings to their clients (additional cantonal banks are working on it). As these are very recent services, it is too early to determine the profitability (and revenues are not public yet).
However, having spoken to several advisors and experts, it seems that the ambition is to offer two distinct client groups access to simple crypto services: private banking clients who want to buy crypto and a younger clientele who is very crypto-friendly and would normally use a pure crypto exchange or fintech apps.
The additional crypto offering can be seen as a simple extension into a new asset class, based on persistent client demand.
Bankers finally realized that crypto is here to stay and client demand wont’ go away.
Crypto banks
Since 2019 Switzerland has two dedicated crypto banks. Over the years, they have raised three-digit millions in multiple fundraises.
In its most recent round for example, Sygnum raised USD 40m at a post-money valuation of USD 900m.[5]
A bit longer ago, Amina Bank (formerly SEBA Bank) raised USD 119m in a Series C round in January 2022.[6]
The multiple fundraises show that getting a regulatory license, forming a team and a brand, building a new digital infrastructure as well as expanding globally takes time and is costly.
Experts believe that both banks have not reached cashflow break-even yet, which is not surprising as the costs of building a bank from scratch are considerable.
Trading platforms and exchanges
In recent years, several institutional platforms for crypto and token trading have emerged in Switzerland. Besides Sygnum, Swissquote also Taurus launched a crypto exchange, this year making it accessible to retail investors.[7]
What is interesting is that Taurus raised USD 65m in a Series B round from strategic investors, including several banks such as Credit Suisse, Pictet, Deutsche Bank and Arab Bank.[8]
While Swissquote self-funded their crypto exchange, Sygnum and Taurus chose to get the support of investors.
As there is no public information about the revenues, a proxy for achievable trading revenues can be Swissquote (see above) but also Bitcoin Suisse. A closer look at Bitcoin Suisse’s financials shows again the volatility of crypto trading revenues:
2020 Financials
Bitcoin Suisse Holding AG achieved a consolidated net profit of CHF 24.1 million. Consolidated revenues reached CHF 60.3 million, an increase of CHF 39.4 million compared to 2019. At the end of 2020, our total assets under management exceeded CHF 2 billion. As of June 2021, this number increased to CHF 5+ billion stored in Bitcoin Suisse Custody.
2023 Financials
Compared to 2022, global trading volumes for the crypto sector fell by 40% in 2023. For the 2023 financial year, Bitcoin Suisse reports a net loss of CHF 13 million. The company closes 2023 with a robust capital base of over CHF 100 million. Over CHF 17 million in net profits signal a strong comeback in Q1 2024. Coupled with the stellar performance of its clients’ portfolios in the past six months, this led to the company recently surpassing CHF 5 billion in Assets under Custody. Notably, CHF 2 billion of these assets are allocated in Staking, solidifying Bitcoin Suisse's position as one of Europe's largest custodial staking service providers.[9]
The comparison between 2020 and 2023 financials clearly show how revenues and profits from crypto trading are highly cyclical, making for a volatile business model.
Noteworthy is that the 2023 financials highlight staking services. As many experts have confirmed has staking become an important revenue source.
Wallets
Over the years I have seen different Swiss wallet providers emerge. All of them have in common that they require considerable investments into the technology, the regulatory side as well as in marketing and sales.
As an example, the Bitcoin-only Relai app in its most recent fundraising round secured USD 4.5m of funding.[10]
Again, I would expect the revenues to be closely tied to trading volumes that again, are tied to crypto prices.
Learnings are next
In the crypto hype cycles of 2017 and 2021 raising money for crypto ventures was much easier than today. Since 2022 investors are much more focused on achieving growth and profitability.
As everywhere in startup land, the question of ROI by investors is getting louder!
In the second part I will dive into the learnings in the Swiss crypto ecosystems. So stay tuned and sign up!
[1] https://www.wsj.com/livecoverage/fed-meeting-today-fomc-jerome-powell-may-2024/card/crypto-company-tether-says-it-made-4-5-billion-in-profit-last-quarter-QFkK7ZhIfBHoTX2YjSsO#
[2] https://www.finews.com/news/english-news/49150-swissquote-crypto-trading-staking-jan-de-schepper
[3] https://reports.swissquote.com/en/gb2023/year-2023#:~:text=Despite%20a%20challenging%20environment%2C%20Swissquote,CHF%2058.0%20billion%20in%202023.
[4] https://financefeeds.com/swissquote-h1-profit-surges-but-crypto-revenue-dips-60/
[5] https://www.sygnum.com/news/sygnum-raises-more-than-usd-40-million/
[6] https://www.coindesk.com/business/2022/01/12/digital-asset-platform-seba-bank-raises-119m-for-global-expansion/
[7] https://www.ledgerinsights.com/taurus-okenized-securities-exchange-tdx-retail-investors/
[8] https://www.taurushq.com/blog/taurus-raises-usd-65-million-from-strategic-investors/
[9] https://www.bitcoinsuisse.com/news/strong-growth-profits-q1-2024