The Federal Council intends for Switzerland to assume a pioneering role for crypto investments. On the other hand, the Deutsche Bundesbank wants every attempt to regulate cryptocurrency to take place on a global level in order to be effective. How do you feel about this dilemma?
Because technology respects no national borders, uneven development on the national and international levels is really challenging. What matters, at least for today, is the national or local aspect, because there is no international regulation. However, there are also working groups, standards and recommendations. While we are also active internationally, we are headquartered in Switzerland and relate to local laws. The Swiss authorities have established a good foundation and it would be desirable if they would also actively promote this in all possible international organizations. We support such efforts with our expertise and are for regulation in the existing legal landscape without limiting the necessary freedom. We are moving in the right direction in Switzerland.
The Crypto Market Index 10, calculated by SIX and managed by you, measures the top ten largest and most liquid cryptocurrencies and provides the basis for your fund products. Today, the index is at around the same level as it was in autumn 2017, after shooting up nearly fourfold by January 2018. Is this a favorable moment to get into the market?
I find it funny that many compare the current situation to what it was a year ago. If you look at the history over a longer period you can still see an upward trend. Sometimes we are above the trend, sometimes below. The market may be more volatile than traditional stock markets, but all the more thrilling for it. It is very promising for the future, especially in view of the SIX Digital Exchange that is currently being created and where blockchain shares will be traded. Everyone should be aware that we deal with risky assets and that only a relatively small amount of assets should be invested, but the moment to enter the market is certainly not bad today.
In the rules for your index, it says that trading can be discontinued in the event of a significant drop in turnover. What does that mean?
Here, we are following the practices of traditional markets, where it is customary to automatically suspend trading for a few minutes in the event of strong downward movements, for example. In our case, the index is only compiled by SIX during the daytime, but cryptoassets are traded around the clock. This means that it is up to us to intervene in a serious situation so that index participants are not disadvantaged in the event of market distortions.
In January 2019, trading was discontinued with the cryptocurrency Ethereum Classic because it fell victim to manipulation. What impact would the end of one of the ten index currencies have on the fund?
We removed Ethereum Classic from the index a month before this due to lack of compliance with our liquidity requirements. The index does not require that there always be ten currencies present. There are currently seven. What is important is that the currencies meet the objective requirements. For example, that they are traded on several exchanges and are liquid. Incidentally, trading in Ethereum Classic has not been discontinued everywhere and the currency has not ceased to exist.
Institutional investors are among the leading capital market participants. What development, in your opinion, must the crypto industry still undergo so that institutions such as the Swiss Old age and survivors' insurance (OASI) become your customers?
That is already possible today, from a purely objective perspective. Keyword diversification: since they are virtually uncorrelated to traditional investments, they are suitable as alternative assets in current portfolios; an investment in the future. However, it is also clear that trust in new investment vehicles in the crypto sector must be further strengthened. We hope that larger financial institutions will climb on board through strong partners such as SIX.
Speaking of trust. It is not great everywhere. Nouriel Roubini, a well-known US economist, who forecasted the financial crisis and subsequent recession ten years ago, recently stated that blockchain was most useless and over-hyped technology ever. What do you say to the critics?
There are two sides to that issue, one that finds blockchain to be fantastic, and the other holding the opposite opinion. The new technology has great potential in any case. It is the first time we are able to directly exchange assets without an intermediary, in which the assets cannot be copied, counterfeited or stolen. Otherwise, most critical voices arise from the Western world, where we generally have well-functioning, stable systems which somehow or other offer a future guarantee, because we trust the institutions that are behind the systems. That is not the case in other countries, especially where there is widespread corruption or horrendous inflation. It is precisely in these countries that blockchain is very interesting for the population.