Bitcoin lock with SEBA CEO

The CEO of Seba Bank in Switzerland talks to Anita Hawser about crypto’s 'annus horribilis' and the FTX collapse.

The tiny canton of Zug in Switzerland is thousands of miles away from the saga that is unfolding across the pond following the arrest in the Bahamas of crypto exchange FTX’s CEO and founder, Sam Bankman-Fried, who faces possible civil and criminal charges. 

But in what has become known as Crypto Valley, where crypto pioneers like Ethereum and others first came in the mid-2000s to avail themselves of its crypto-friendly regulations, the collapse of one of the world’s biggest cryptocurrency exchanges has resulted in some head scratching and reflection. 

“Nobody expected what has happened,” says Franz Bergmueller, CEO of Zug-based Seba Bank, which is one of only two fully regulated crypto banks in Switzerland. “There was this narrative that FTX was a stable company. Seeing this rockstar CEO giving interviews, many people believed he was a solid player, so it is kind of a surprise to most people.”

Crypto industry loses trust

Mr Bergmueller says the bank’s main customers – crypto natives and traditional investors – have had mixed reactions to FTX’s bankruptcy.

“Crypto natives who own a lot of coins and tokens are approaching us right now to help them diversify into more traditional assets, while traditional investors are being careful at the moment,” he says. “They are new to the industry and have an interest to diversify, but are waiting to see what happens.”

But everybody, he says, is looking for a more secure and regulated world, particularly institutional investors. “The crypto industry has lost trust. Some of the [stories of] crypto companies not segregating client money, and using it to speculate, this is not our world,” he says.

He adds that, as a Swiss-regulated bank, it must keep clients’ crypto assets separate from its own balance sheet. “We need to have proper compliance in terms of [anti-money laundering (AML)], [know your customer (KYC)], and risk management.”

Mr Bergmueller says Seba Bank is very selective as to who it does business with and employs experts who trace every transaction back to its origins, as well as conduct proper checks on customers’ sources of wealth. 

Crypto natives need a bank

Explaining why he joined the crypto bank back in April 2022, having previously worked in bancassurance and as an IT and strategy consultant, Mr Bergmueller says that as a new asset class, crypto is attractive to everybody. “Being a regulated [crypto] bank is an attractive space to be in. There are not that many, and there is a place for a bank as a middleman. Traditional investors understand banks, and crypto natives need a bank.”

Mr Bergmueller says crypto natives find it difficult to open an account with traditional banks. “They are often made to feel like criminals.”

As controversy continues to engulf centralised crypto exchanges, Mr Bergmueller says hopefully everyone has learned the lesson not to keep their tokens and coins on exchanges. He says there is a big discussion in the industry at the moment about self-custody of digital assets versus custody provided by banks like Seba. “However, a lot of people are saying this [self-custody] is too complicated. Not everybody is tech-savvy.”

Despite what can only be described as crypto’s ‘annus horribilis’ – with FTX’s bankruptcy and the collapse of Terra/Luna and crypto hedge fund Three Arrows Capital – Mr Bergmueller says crypto is still a very young industry, and that Seba Bank strongly believes in the future potential of DeFi, stablecoins and a technology revolution based on blockchain technology.

“We are all from countries where we are used to proper banking systems, but what if you are in Africa? We strongly believe that with blockchain we can see new applications in the financial services industry.”

He believes DeFi holds a lot of promise, but says it is still new and requires proper regulation. “I could see a combination of decentralised finance and a regulated bank, but currently, under Swiss regulations Seba is not allowed to work with DeFi protocols. At the end of the day, regulation is about proper KYC, AML and sanctions screening.” 

The underlying question is how do we make sure we are fully compliant even in a DeFi world?” Mr Bergmueller says this is possible through the use of smart contracts. 

Growth areas in crypto

But given the trust deficit the industry now faces, are central bank digital currencies (CBDCs) likely to gain more favour? “I see CBDCs [...] as an add-on, not a replacement for traditional cryptocurrencies,” says Mr Bergmueller. “Traditional investors will probably have a tendency to trust central banks, but crypto natives still believe in the concept of digital assets.”

Tokenisation of assets is also another growth area. In 2021, Seba developed a ‘Gold Token’, which allows investors to own a digital form of gold, but Mr Bergmueller says market acceptance for these tokens is only just starting.

“This is definitely a topic for the future, but it is not our highest priority. Right now, our focus is on the crypto natives, helping them get proper bank accounts, to diversify their assets, and ensure they can use their wealth even if the markets are going sideways.”

In January 2022, the digital assets bank completed its Series C round of funding, raising $120m from investors, which saw participation from Swiss private bank Julius Baer, who also participated in its Series A round. 

“Raising money in 2022 was a lot more difficult compared to the last few years,” says Mr Bergmueller. “Money is not free anymore. It is definitely challenging, but we are in pretty good shape. We’re very well capitalised, which gives us a lot of freedom and is a positive sign for our customers.”

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