Tuesday, March 6, 2018

The (rare) banks that dare cryptocurrencies :

The (rare) banks that dare cryptocurrencies


The investment market and fortunes in bitcoins or other digital currencies may escape Swiss banks. Liechtenstein is a competitor.

What if Swiss private banks were missing out on a new market? With the exception of Falcon Bank, the overwhelming majority of them refuse to welcome the fortunes resulting from investments in cryptocurrencies, for example during the initial coin offerings (ICO), these fundraising often carried out since Zug. And many still do not advise their customers to invest in bitcoin or other digital currencies. This strategy amounts to depriving a new clientele, rather young and certainly less traditional, but who also wants to benefit from high-end management services. This new market nevertheless attracts players, two of whom - in Liechtenstein and Switzerland (see below) - have recently launched targeted management services on blockchain and cryptocurrency.

"The demands we receive far exceed what we can currently provide," says Time Edi Wögerer, CEO of Bank Frick. Based in Balzers (FL), which considers Switzerland as its first market, does not provide advice on cryptocurrencies, but since Wednesday allows its customers "high net worth" or professionals to buy and sell the five main : bitcoin, bitcoin cash, litecoin, ripple or ether, as a broker would do for traditional assets. The bank uses Bitcoin Switzerland and Bitstamp specialized trading platforms.

"We decline 95% of requests"
Bank Frick also deposits these crypto-assets on "cold wallets", physical portfolios that are not connected to the Internet. The risks of hacking are thus limited and the customer does not have to worry about long passwords, private keys, which allow access to a wallet. Cryptos transactions appear on customer statements.

Another activity of the bank: the advice to the initiators of ICO, by the creation of the necessary structures and the evaluation of the business models of the companies which seek to finance themselves thus. "We account for more than 95% of the requests we receive for this service," says Edi Wögerer. We are extremely conservative and enter the field only for ICOs launched in Lichtenstein or in Switzerland, and of course for projects that seem solid. "The establishment claims to have advised a dozen ICOs for the moment, ranging from size of 3 to 110 million and for a total of over 200 million francs raised, with a team of ten blockchain specialists.

One of the criteria for this radical selection is the fight against money laundering and customer identification. "We only select projects with strong LBA and KYC procedures, and we carry out additional due diligence with additional tools that we have developed over the three years we have spent preparing for this new business area," says Stefan Rauti, who manages private management at Frick.

"7% of funds raised? Not at all"
There will also be few details on the fees charged for these two services. For brokerage on cryptocurrencies, they are "similar to those charged on traditional asset classes," continues Stefan Rauti. For his advice to the ICO, the bank takes up to 7% of funds raised, as we sometimes hear? The figure makes smile our interlocutors, who answer that the bank does not participate in the ICO it advises and that the rates depend on the complexity of each operation. A customer who would take all the services of the bank related to cryptos would pay less than this 7%, specify our interlocutors.

The bank of around 90 employees - the average age is under 40 - also welcomes cryptocurrency fortunes in search of management services, without necessarily having been converted into traditional currency. "If we can not easily trace back the funds, we refuse to open an account," says Stefan Rauti.

For him, an "easy" (and real) case is that of a client who inherited cryptocurrency from a family member who had been partially paid in bitcoins. Work contract and tax documents in support. For more complex cases, the bank Frick will not go so far as to disclose these internal procedures, secret manufacturing requires.

The Falcon method
Falcon Bank's approach to cryptocurrency is a bit different from Bank Frick's. Since last July, the Zurich establishment offers its customers the opportunity to diversify their holdings of bitcoins and other digital assets. Having obtained Finma's approval for this activity, the bank with 230 employees in Switzerland and 14.6 billion francs in assets at the end of 2016 has a desk dedicated to cryptocurrencies, made up of a handful of employees. On the other hand, "we do not involve ourselves in the ICOs, especially for regulatory reasons, but under certain conditions, we can accept fortunes of crypto origin," says Urs Fehr, spokesman for Falcon Bank.

The bank carries out a specific due diligence by an external partner, who analyzes the history of funds on the blockchain. "But we do not accept cryptocurrencies and do not switch to fiat currencies, it's up to customers to do it," says Urs Fehr. He says he has received "an endless number" of requests from around the world since July. And again, the overwhelming majority is refused, for cross-border management issues or because the eventual customer did not meet the requirements of private management. Still, the "crypto" activity, although limited, is already profitable, according to Falcon Bank.


The management company 100% blockchain
It was (obviously) in Zug that a management company specializing in blockchain assets was launched last weekend. Vision & (pronounced "vision and") wants to allow sophisticated customers to invest in the main cryptocurrency (bitcoin, ethereum, ripple) and in promising projects like the Zurich start-up Modum, whose technology allows to follow the conditions of transport of a good. "In the long run, we also want to invest in small companies whose activity revolves around the blockchain," explains Time Vision & CEO, Lidia Bolla, who unveiled her concept Thursday night in Zug.

The company of five employees conducts its own basic research and proposes a core-satellite approach, with well-known projects that occupy the center of its allocation and what it describes as future leaders on its periphery.

More risks
"Crypto-assets bring diversification and upside potential, provided we take a little more risk, so we recommend that our clients invest only 5% of their assets in our strategies." says the former banker specialized in quantitative finance. Client crypto-assets are deposited with Bank Frick, Liechtenstein (see above).

According to vision &, between April 2013 and December 2017, a portfolio with a high risk tolerance (75% equities, 15% bond, 7% real estate, 3% gold) would have achieved a performance of 10, 9%, for a risk level of 9.8%. If it had contained 12% of cryptos assets (and 70% of equities, 10% of bonds, 5% of real estate and 3% of gold), the performance would have been 29.9%, but with 13.9% risk. For a balanced portfolio (40% equities and 50% bonds), performance would rise from 6.6% to 14.1% over the period, with a level of risk that would also increase by 5.6% at 7.6%.

Supervised by the self-regulating organization Zugois VQF, vision & advise against investing in a basket containing the 5, 10 or 20 largest cryptocurrencies. "This portfolio would be very unstable," says Lidia Bolla, "because these currencies are evolving so quickly that we would have to buy and sell all the time, which would result in transaction fees that are too high." The strategy is to hold historical cryptocurrencies in order to 'avoid the effects of fashion and assets that fly away suddenly before collapsing just as quickly.
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