Switzerland's burgeoning cryptocurrency sector is closing in on taking institutional money. But the finance revolutionaries need to befriend their worst enemy for the last mile.

Another major bank is poised to enter the crypto ring, finews.com has learned. The bank is preparing to go further than Falcon Private Bank, which has been trying to reinvent itself as a crypto asset manager since last year.

The most recent entrant also wants to act as a custodian for digital assets, by offering crypto storage through third-party partners. Focus has narrowed to two Swiss firms which can do this at the moment: Crypto Finance in Zurich, and Taurus in Geneva are both specialized in holding and storing digital assets.

What about the latest bank to enter the ring? It could be Swissquote, the online bank which recently expanded its crypto offering to include initial coin offerings. The bank's finance chief told finews.com last month that Swissquote would continue to expand into blockchain-related services. Swissquote offers already custody services for token from ICOs.

Bashing vs Cozying Up

For Swissquote, it wouldn't be a big leap from ICO chaperone to crypto depository.

A partnership for storage would be a breakthrough for Switzerland's nascent but fast-growing crypto scene. Until now, banks have smothered cryptocurrencies in the only way they can – by refusing to build a money bridge between institutional investors which would secure the liquidity that crypto providers have long awaited.

Of course, it's not without a certain irony that the crypto scene is so hot to work with finance: Traditional banks are regularly declared dead by digital start-up entrepreneurs at the countless conferences that the industry devotes to crypto, blockchain, or ICO. 

Virtually Worthless License

The more mundane truth is that without a regulated bank or another license, cryptocurrencies will not find their way into institutional hands, which is where the real money lies. Until then, they have little hope of going mainstream.

The conundrum facing crypto is best illustrated with Crypto Finance AG: the Swiss firm finally clinched an asset manager license last month as well as a fund license this summer. But without a bank as a crypto asset custodian, the Swiss license is virtually worthless.

Countless other start-ups face the same fate: Smart Valor, which predicts a revolution of investing, recently launched a digital Swiss franc, with the goal of providing liquidity to the crypto market through a stable coin.

Desirable Bank License

To do so, Smart Valor needs the cooperation of banks, the only regulated financial institutions which can act as a go-between for fiat and crypto funds. CEO Olga Feldmeier is applying for a banking license in Liechtenstein, which has proven more amenable and welcoming to blockchain and crypto start-ups.

Niklas Nikolajsen, head of Bitcoin Suisse, is taking a similar tack: the crypto broker is self-regulating, but recently issued a digital Swiss franc through a subsidiary of his Zug-based firm (Nikolajsen said at a conference this week that the issue had quickly hit its 10 million Swiss franc goal, and hoped «to put additional zero behind that number» when the instrument rolls over next month).

Feldmeier and Nikolajsen's common goal is to create a crypto liquidity instrument for banks and institutional investors. Nikolajsen also eventually wants a banking license from Swiss regulator Finma – without it, his hopes for a scalable business with crypto assets is a pipe dream.

High Financial Stakes

Seba, a newly-launched crypto bank project spearheaded by ex-UBS banker Guido Buehler, illustrates what needs to be set into motion. Buehler's founding team secured an initial $100 million before Seba knocked on Finma's door for a license.

As soon as Seba is active as a crypto bank, the company will be in an excellent position to manage huge flows of digital assets. Easily imaginable that by that time, a traditional and well-established Swiss bank will also jump on the crypto bandwagon.