Recent data suggests that the Swiss blockchain industry is making impressive gains. The latest report by the country’s main industry body, Crypto Valley Venture Capital (CV VC), for example, points to increased valuations and rising employment figures. On releasing the report, CV VC exclaimed that “the summer is back.” But is it really time to start celebrating?
According to the report, published in collaboration with the Big Four accounting firm PwC and its partner Inacta, the top 50 blockchain companies have doubled their valuations in the first half of 2019 to $41 billion. Furthermore, it estimates that the Swiss ecosystem as a whole now encompasses 800 entities, employing 4,000 people, including six so-called “unicorns,” each with valuations in excess of $1 billion.
But before we get too carried away, it is important to draw attention to some nuances in these figures. Firstly, the term “valuation” in this context means something different to its conventional meaning in traditional industries. The methodology section of the report clarifies that sometimes this figure is based on funding, sometimes on traditional valuation metrics, and sometimes on the market cap of tokens.
It is in the third case — market capitalization — where things become a little murky. Utility tokens are a form of digital asset that provide access to a network or service. In this respect, by using utility token sales as a proxy of valuation, there is a danger that valuation becomes conflated with revenue. So, while we can take these figures as indicative of a broadly positive trend, we need to bear in mind that the margin of error is likely to be higher than for conventional initial public offering valuations, which is understandable given that we are dealing with a diverse, and largely nascent, emerging industry.
Beyond the headline figures, however, what really matters are the use cases. The so-called “crypto winter” was a necessary and beneficial sanity check for the blockchain industry. Many of the projects that were based primarily on hype or speculation have died off and most of those that have survived and thrived are attempting to solve real problems.
These projects are not simply a collection of identikit coins and wallets. WPP Energy, for example, is creating a secure platform to trade renewable energy supply globally. Utopia Music wants to improve the music industry by monitoring which tracks are being played and linking them to a copyright smart contract, which will automatically pay the relevant artists and rights-holders faster than ever before. Etherisc is aiming to use blockchain technology to build decentralized, cost-effective insurance products. In each case, blockchain is being used as a tool to solve specific problems.
We have also seen continued strengthening of the financial underpinnings of the Swiss blockchain ecosystem in recent months. For the first time, the national financial regulator, FINMA, granted licenses to two banks, Sygnum and SEBA, which are focusing on digital assets. This looks like a farsighted move, as such regulated financial institutions will play a crucial role in integrating digital assets and tokens into the wider financial economy — opening up access to a greater number of traditional investors and institutional players. These banks will also enable blockchain startups to open a corporate bank account more easily, a process that had previously been slow and bureaucratic.
More broadly, the Swiss government has been quite forward-thinking in creating a blockchain strategy to give the sector a stable legal foundation, without stifling innovation. Added to the country’s traditional advantages — such as its excellent infrastructure, competitive tax regime, and legal and financial expertise — it makes for a compelling combination for many blockchain startups. Places like the Swiss city of Zug, known as Crypto Valley, have created a test tube for innovation and experimentation, combined with stable regulatory oversight.
Overall, the latest CV VC figures show a Swiss blockchain industry that has gotten back on its feet. The companies that have survived and thrived in this new economic environment have been using blockchain as a means to an end, not an end in itself. To sustain and build on this progress, we should now aim to gradually build a sustainable ecosystem of real businesses serving real clients — an endeavor that will not only involve innovative startups and the blockchain community, but also mainstream businesses and regulators.
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