Interview with Niklas Nikolajsen & Dr. Arthur Vayloyan
Feb 11, 2020
1. Why are Bitcoin and crypto here to stay?
Arthur: Bitcoin is the archetype of an antifragile system, the epitome of the hyper-accelerating IT era we are living in. Many blockbuster innovations started in the garage, as ideas created by a handful of extremely gifted people. And here comes Bitcoin. A global currency designed in the garage? Pretty impish. So, it’s no surprise it was first ignored and then ridiculed by many of the very important people of our current establishment.
But not everyone joined the “Bitcoin is doomed to fail soon”-choir. And even before Bitcoin appeared, Milton Friedman, who was quite a visionary predicted:
“The one thing that’s missing, but that will soon be developed, is a reliable e-cash, a method whereby on the Internet you can transfer funds from A to B, without A knowing B or B knowing A.”
This sums it up pretty well – in the era of the internet, you need money that is native to the internet. It’s that simple.
Niklas: Bitcoin, as an asset class as well as a settlement and payment network is, by now, more than 10 years old. It offers a valuable alternative to the traditional fiat currencies, both as a means of payment/settlement as well as a store of value. It is the world’s first truly digital money, in the form of data – which provides great advantages in terms of utility, transparency and automation.
Adaption of Bitcoin has never been higher and continues to grow. Based on this, I see no reason why Bitcoin will not continue to grow in importance, in adoption, as well as in value – and why it will not also be around to celebrate its 20-year anniversary, 10 years from now.
2. Before we look forward to 2020 and beyond – can you give us a short recap of the major ups and downs of the crypto market in 2019?
Niklas: Throughout 2018 and 2019, the crypto markets have been undergoing a severe correction, after the markets went well ahead of themselves in 2017, when Bitcoin rose from 1000 USD to 20’000 USD. A great number of new blockchains launched themselves into the market, raising very large amounts of Bitcoin and Ether in the so-called ICO boom, most of them with a promise to become the next Bitcoin or Ethereum – and few of them able to deliver on this promise. This has undermined the confidence in crypto assets in general and furthermore, the release and liquidation of the collected assets from the ICO entities has been negatively impacting the markets.
I believe, however, that with Ethereum currently undergoing a transformation into ETH2 and with Bitcoin approaching its reoccurring inflation halving, this will change in 2020, where I predict around February, that a positive trend will once more take hold.
3. What trends have you observed over this time?
Arthur: It appears that just about everything will be connected over the Internet, which isn’t a totally pleasant thought. As such, a myriad of new peer-to-peer markets will emerge. And a peer can be just about anything – a human, a machine, a building, anything. But in order to function properly, these markets need price-discovery mechanisms and an adequate means of payments. This is where Bitcoin, or some other technical variation thereof, comes into play.
Niklas: Throughout 2019, we have seen major crypto assets reel from the 2018 correction and try to find their true market value. Bitcoin started the year near 4’000 dollars, went as high at 13’000 dollars, and settled end-of-year at around 8’000 dollars. Ethereum has been under pressure all year, due to the uncertainties related to the launch of ETH2. The aftershock of the ICO boom and the 2018 correction have, in my view, been the major drivers of the market throughout 2019, much larger than the impacts provided from the regulatory- and industry side, and the trend has been towards stabilization.
It would appear that the large correction is over – and possibly we’ll be seeing a ‘crypto spring’ replace the crypto winter, as the months of 2020 turn warm.
4. There is a growing acceptance of cryptocurrencies as a new asset class. Is it enough to treat them like any other investable asset? Why or why not?
Arthur: It will take a while until cryptocurrencies, or more generally crypto assets, will be broadly seen as an established, alternative asset class. For this to happen, we may have to wait a few years. But looking at our most recent partnerships with Amun, Emaar or Worldline, we can clearly see where the journey is heading. And as such, I strongly suggest to consider crypto assets as a potential investable asset class and to maybe even enrich your total wealth with a suitable portion of crypto assets and hodl them. Just a thought, of course…
5. Quite honestly, crypto technology is constantly changing and evolving. What technical developments can we expect to have strong impact in 2020?
Niklas: Crypto technology – as well as those of the surrounding ecosystem, are still very much in their infancy. However, development is ongoing, not just on the technology side, but also in regards to the regulatory frameworks and the ecosystem in general.
Amongst things to watch out for in 2020 are, in no particular order: The launch of ETH2 , the migration of the ETH-based ecosystem to ETH2 as well as the development of Decentralized Financial Services (DeFi). The launch of the Telegram (TON) network as well as the Libra, is also something to watch out for. Then, of course, the elephant in the room: The Bitcoin halving. Many things will happen in 2020 and it is going to be a very exciting year.
6. Bitcoin Suisse has applied to be a licensed crypto bank. Everyone wants to know what this will change for the company? What insights can you give us?
Arthur: We have established ourselves over the past six years of operations as a trusted, safe and reliable partner for all our clients. And we will further develop our excellent service offering along the path we have chosen since 2013. We are constantly improving and innovating to expand our offering and are regularly entering into strategic partnerships with renowned global brands. But without a doubt, even more would be possible under the umbrella of a bank and broker/dealer license.
Niklas: Bitcoin Suisse is an evolving business and we always have been. In the summer of 2020, we will celebrate our 7-year anniversary and you only get to become that old in the crypto markets, if you can continuously improve, innovate and re-invent yourself.
With regards to the banking license itself, less will change than most would imagine. We will, of course, offer cash accounts for our clients, in their own name. We will also be able to more cost effectively manage deposits, something which will make our pricing much more competitive. We will start trading crypto securities, stablecoins – and synthetics, such as mini-futures and products to short the major crypto assets. We will be expanding our credit/loan and liquidity business, and we will expand our staking offering.
Last, but not least – we will be launching an offering for the public, likely in the form of a SPV, that they may invest into Bitcoin Suisse, as to increase our company capital from the current approximately 50M CHF, to around 100M CHF, providing for a much stronger balance sheet as we enter the world of banking.
7. Over and over again, we have heard the refrain “the institutionals are coming” – meaning that larger financial institutions will dive into the crypto asset market and have a significant influence. Is this a factor to watch out for in 2020 – or should we even care?
Arthur: Yes, we care- a lot. The various adjustments on the legal and regulatory side will be the main thing that enable institutionals to embrace, first opportunistically and then later systematically, the benefits of the crypto asset market.
And despite the prolonged crypto winter, we see a crypto summer of innovations, -be it on the technology side (think Ethereum 2) or on the regulatory front (think FAFT and Travel Rule). And I am proud to say that we have been very timely in adding a new service offering for ETH2 staking for all our clients and proposed a comprehensive open source solution regarding the missing “Crypto-SWIFT” via the OpenVasp.org initiative. So on several fronts, we see the advancements that will bring more and more interest from institutions.
8. Two decades after the new millennium, we have seen many monumental changes in society, business and beyond. What part will crypto play in the next decade or two?
Arthur: The price/performance of technology will continue to accelerate. And the world is moving towards the better, contrary to what media would have us believe. The rapidly growing abundance in major areas of our life (water, food, energy) will allow us to fundamentally re-write the social contract between humans and soon, between men and machine as well! But of course, this great journey towards the better will not be without some turbulences in the interim. And as long as humans are cut out of the same mould, it will probably never be different.
When I was born, three billion people lived on this planet. Two billion were living in so-called extreme poverty. Today, we have over seven billion people and the number of people living in extreme poverty is well under one billion. And this trend will not stop. Assuming further progress, extreme poverty can soon be put in the museum, as Professor Yunus (Noble Peace Prize winner from Bangladesh) phrased it. Now, couple that with the ever-increasing connectivity of people and you cannot but assume massive innovation beyond imagination. But to just wait for the better is not an option. Because luck meets the prepared. A constant call to action is required. Our clients and partners can count on us.
Niklas: More than most people think. After centuries of a financial and also societal system built on representatives, internal ledgers and central trusted parties – consensus systems, open ledgers and decentralized systems will have a huge impact on almost everything.
9. There are many diverse schools of thought on crypto assets – and a good many myths. Are there some main myths that we should be aware of and which should be “debunked?”
Niklas: Yes – crypto assets were not invented, nor propagated for the purpose of dark markets and shady business. Quite the opposite, they are here to replace and improved upon the essentially intransparent, inefficient and flawed system of centralized trust and centralized or delegated control – which tends to benefit the few and not the many.
Arthur: A myth? “Bitcoin has no intrinsic value!” To still hear this from reasonably well-educated people surprises me quite a bit. Yet another myth? Satoshi Nakamoto.
10. What has Switzerland done right so far concerning cryptocurrencies and blockchain technology? Where do you feel there is room for improvement?
Arthur: Politics matter. And in Switzerland we are privileged to have a rather decentralized, bottom-up political system. And the icing on the cake: our top executive body, the Federal Council, shines with a very innovative attitude towards the many possibilities of this new technology. This is quite unique in the world and one of the success factors of this small country with such a global reach in many of the most innovative fields.
Niklas: Yes. I have never seen anything, perhaps except the Mona Lisa, which could not be improved upon, and for that reason, I do not feel that it would be appropriate to use this space to list criticism.
When I reviewed various jurisdictions, trying to choose a place for my future Bitcoin company some 9 years ago, Switzerland came out on top. I feel to this day that this was the right decision and I can only praise the Swiss jurisdiction as a place to do business, in crypto or otherwise.