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Switzerland’s ‘Crypto Valley’ is one of the most important parts of the world for blockchain technology and crypto assets.
With its name being a play on America’s Silicon Valley, Crypto Valley is shorthand for a set of cities across Switzerland and Liechtenstein packed with blockchain companies.
Zug is generally considered its centre and has the most companies, with Zurich, Geneva and Lucerne also well represented. Close to 1000 blockchain companies are already operating in Crypto Valley, with light-touch regulation, a good legal system, favourable tax rules and proximity to investors being the key draws.
Many of the biggest projects in crypto operate out of Crypto Valley including Ethereum, Cardano, Polkadot, AAVE, Cosmos, Tezos, Dfinity.
Where you find a good supply of tech start-ups you will find venture capitalists, and one of the biggest players in the arena is Crypto Valley Venture Capital, whose founder and CIO Olaf Hannemann spoke to Insider this week.
CV VC has traditionally focused on taking equity positions in crypto start-ups and offering ‘incubator’ services to get new projects financed and off the ground. It has positions in dozens of promising blockchain firms and crypto assets.
It also offers investment products that provide clients with exposure to bitcoin and the top defi tokens, as well as a recently launched ‘crypto fund of funds’ dubbed the CV CB Digital Asset AMC.
Naturally Hannemann, who came into crypto with a background of working in traditional finance at JPMorgan, is bullish on the market’s long term potential.
“Our investment thesis is essentially that we believe that blockchain technology is a catalyst for a lot of other mega-trend technologies that are happening right now, like machine learning, internet of things, personalized healthcare and longevity.”
Hannemann sees the recent fall in crypto asset prices as an inevitable short-term pull-back rather than the start of a long .
“I personally think it’s just a pull-back but then again, it’s crypto, a market where you have only 10 years experience. It’s a market that you know is very different.”
“There’s more and more established capital also coming in,” he continued. “It has different market dynamics to traditional established markets. Something which is both a challenge and an opportunity is that you are able to trade at extremely high leverage positions. That will bring with it a very volatile market in the short term.”
Turning to bitcoin specifically, Hannemann sees it going higher over time, somewhat in line with the stock to flow model, which forecasts rising prices over the long run as new supply of coins is squeezed down.
“Obviously medium to long term we are fundamental believers in everything crypto, but whether it’s this year we rebound and see $100,000 I don’t know. Clearly there’s strong fundamental support at these levels or slightly below.”
“If we go into the mid-thirties for a prolonged period of time that would give me a lot of concern, but fundamentally I’m still positive on bitcoin. I’m a big believer in the whole stock to flow approach, which means it should go a whole lot higher than where we currently are.”
Bitcoin fell below $40,000 for the first time since August on Friday, swept up in a wave of risk-aversion that has hurt the more expensive parts of the stock market, such as technology shares.
Outside of bitcoin Hannemann is bullish on smart contract platforms, the most notable of which is ethereum.
“Another fundamental view we have is favoring the protocols where people truly develop projects. Our view on ethereum is generally positive. It’s still the go-to for many projects and I think there’s positive momentum still.”
“The interesting bit will be the next two years in terms of where do we really see adoption of projects and commercializing of projects, and which other protocols do projects choose to develop on?”
“There’s a lot of capital in ethereum, but there is also tezos and cardano. We like solana and polkadot too. There are projects looking at stacks, which offers applications built on top of bitcoin. Avalanche is one to watch too and more recently we a re looking at NEAR protocol,” he said.
CV VC has partnered up with ethereum rival cardano and open-source blockchain tezos.
Hannemann is very open-minded on which platforms will do the best over time and is not convinced there will be a winner-takes-all outcome. His advice for investors trying to back the right horses is to look at where start-ups are building things.
“I think long long-term, the jury is still out on whether will there be one or two endgame winner protocols, or whether it will be many different blockchains for different industries.”
“You get evangelists who truly believe one blockchain is better than the other but you know what, I may have the better protocol but if I can’t convince startups to build on on my protocol I’m going to lose out medium term.”
Hannemann also noted that the upcoming release of ethereum 2.0 will be a key thing to watch.
“I think the combination of token price versus improved efficiency on the ethereum chain will be critical for blockchain startups, and obviously the more the price increases the more efficient it needs to become, or young startups may look elsewhere.’
Check out: Personal Finance Insider’s picks for best cryptocurrency exchanges