Despite (or precisely because of) high volatility, temporarily increasing return correlation with other asset classes, hypes and crashes, the Swiss and Liechtenstein crypto-asset ecosystem is still active. This is the conclusion of the “Crypto Assets Study 2022” from the Lucerne University of Applied Sciences and Arts, which for the second time provides an overview of the different business models in the ecosystem and volumes on the crypto market.
The Swiss crypto asset investment ecosystem offers more and more financial products. In indirect investments, this is reflected in the number of ETPs (Exchange Traded Products) domiciled, traded or for sale in Switzerland and/or Liechtenstein. But not only the number of products increases, but also the variety. This is reflected in the increasing breadth of the underlying assets.
As the ecosystem evolves, further innovations can be expected not only in indirect but also in direct investments, for example driven by the development in decentralized finance (DeFi), according to the authors of the “Crypto Assets Study 2022”. University of Lucerne.
As mentioned, the crypto asset ecosystem offers both direct and indirect solutions as well as infrastructure services. The players interviewed in the survey are therefore primarily companies and/or institutional customers rather than retail customers.
Among the offerings, issuance and tokenization solutions as well as exchange services are the most frequently mentioned offerings. Lending services, on the other hand, are offered by relatively few companies. The evaluation also shows that there are specialists in the ecosystem who only offer individual services along the entire value chain of crypto-asset investments, but also a few generalists with a wider range of services across the entire investment value chain.
Central crypto exchanges have the largest trading volume of crypto assets or equivalent derivatives. Specifically, the annual volume originating from Switzerland on these central trading venues from May 2021 to April 2022 was an estimated CHF 200 billion. Trading volume on decentralized crypto exchanges amounted to CHF 5.1 billion and is therefore less than that, according to the study. on the two Swiss exchanges BX Swiss and SIX Swiss Exchange, which account for 6.5 billion CHF.
In terms of traditional exchanges, ETPs account for the largest share of trading volume. “However, while the number of crypto-related products has steadily increased, volume has been declining for several months,” the study further notes. While the monthly volume of crypto-related financial products on BX Swiss and SIX Swiss Exchange was CHF 1.2 billion in February 2021, it was CHF 196 million in April this year, i.e. more than six times lower.
The authors conclude from the study that in the past even simple investment strategies in cryptoassets have been beneficial for investors. They would have delivered a higher risk-adjusted performance in a portfolio context, but add that this is associated with increased risk. This was shown by standard risk measures such as the standard deviation or the maximum leverage of a portfolio containing crypto assets.
Additionally, in times of high volatility, the correlation between returns and traditional assets can be high, temporarily reducing the diversification potential of crypto assets. This was recently confirmed in the general market weakness this year, when practically all assets, including cryptos, recorded significant losses in value, cryptocurrencies sometimes even more than traditional investments.
Nevertheless, there is no doubt that cryptocurrencies and assets have a right to exist. “Crypto-assets are here to stay,” writes Prof. HSLU Professor Dr. Andreas Dietrich, who presented the study in his blog.