The brave new world of Bitcoin

Market trends

Given the convenience of established currency and payment systems, what is driving the ever-growing interest in Bitcoin and other virtual currencies?

Bitcoin and other virtual currencies have been the first application of blockchain technology, allowing transactions directly peer to peer, eliminating intermediaries and significantly reducing costs. Since the introduction of Bitcoin in 2009, a new age of tokenised ecosystems has begun – the shift from centralised to decentralised blockchain-based creation and transfer of assets is ongoing. Our world is full of different asset classes ranging from money (in a narrow sense) to gold, real estate, securities, rights and others, many of which are difficult to trade or subdivide physically. Distributed ledger technology, and more specifically blockchain technology, is increasingly providing solutions to this problem.

The Swiss Ethereum Foundation based in Zug launched the first token generating event (TGE), also called an initial coin offering (ICO), in 2014. Switzerland, with its old tradition of political and economic stability and high-skilled labour force, provides a flexible corporate and foundation legal framework for blockchain projects, competitive tax law and regulators that are experienced in blockchain technology but remain cautious. Therefore, the ‘Crypto Valley’ between Zug and Zurich has attracted several of the most prominent blockchain projects in the world and is home to a growing community of entrepreneurs, service providers and crypto-enthusiasts.


Has your jurisdiction taken steps to regulate virtual currencies? What is their current status?

Switzerland has no specific law covering crypto-currencies and other distributed ledger tokens. From a regulatory perspective, the focus is currently the common TGEs. However, Switzerland has been pursuing a balanced regulation approach in regard to crypto-projects. Moreover, every project team has the possibility to request a pre-ruling from the Swiss Financial Market Supervisory Authority (FINMA) and to receive a concrete answer in advance of a TGE, whether the individual project includes a regulated activity or not. This possibility offers a high degree of business and legal certainty for crypto-project teams, as well as investors.

FINMA has acknowledged that there is no specific regulation for TGEs. Nonetheless, certain tokens and TGE structures may fall within the remit of the existing regulation. According to FINMA, the collection of funds for one’s own account without a platform or issuing house acting as an intermediary is not regulated where:

  • repayment is not compulsory;
  • no payment instruments have been issued; and
  • no secondary market exists.

By contrast, tokenised equity, debt raising and deposit taking (situations in which the token holders have a legal counterparty) and the activities of financial intermediaries (structures of TGE that contain elements of either money exchange and/or money transmittance) may be controlled by existing laws that protect creditors, depositors and investors, and that ensure that financial markets function properly.

In general, FINMA follows a wide rather than a formal approach in assessing TGEs. It will make an analysis of the underlying purpose and specific characteristics of the TGE. In such analysis, the structure of the TGE, as well as the purpose and functionality of the tokens issued, will be of primary interest. Following such analysis, a TGE may fall within the following regulatory areas:

  • Provisions on combating money laundering and terrorist financing: the Anti-money Laundering Act applies where the creation of a token by a TGE vendor involves activities of financial intermediaries (eg, money transmitting);
  • Banking law provisions: accepting public deposits where an obligation for repayment towards participants (token holders) triggers the application of the banking regulations;
  • Provisions on securities trading: a licensing requirement to operate as a securities dealer may exist where the tokens issued qualify as securities (eg, derivatives, which include an underlying asset); and
  • Provisions set out in collective investment schemes legislation: potential links to collective investment schemes legislation may arise where the assets collected as part of the TGE are managed externally but remain the property of the investors.

Different EU member state authorities have thus far taken different approaches to the regulation of virtual currencies. Is this due to the different legal frameworks of the member states or (mainly) by institutional practices of the respective authorities?

Not applicable.

How likely is it that the regulation of virtual currencies will be harmonised at EU level? Could a consistent regulatory approach be reached through institutional guidelines for the competent authorities in the member states?

Not applicable.


How are transactions using virtual currencies as the medium of exchange taxed in your jurisdiction?

Responding to the formal request of three Swiss Bitcoin associations, the Swiss Federal Tax Administration has confirmed that Bitcoin should be treated in the same way as the Swiss franc or other fiat currency – that is, trading Bitcoins is neither a delivery nor a service for the purpose of Swiss value added tax (VAT). As a result, a Bitcoin transaction is VAT-free (Article 21(2) of the Swiss VAT Act).

If Bitcoins are used to pay for the supply of goods or services subject to Swiss VAT, the usage of Bitcoins is considered a mode of payment. Consequently, the seller must not charge any additional VAT on a taxable transaction due to the use of Bitcoins as means of payment. This is also the case for other forms of native transaction tokens.

Besides VAT, crypto-currencies are part of the taxable assets of individuals. Capital gains on cryptos, by contrast, are subject to tax only if the relevant assets are business assets. This concerns only individuals who qualify as professional traders. For others, capital gains do not fall under income tax.


If virtual currencies were to become a mainstream payment system, how might this affect the ability to control inflation in your jurisdiction?

Bitcoin and other virtual currencies could affect the stability of prices if they become a broadly accepted means of payment, which is not yet the case. Currently, virtual currencies are mostly used for investment purposes, as a form of a ‘digital gold’, and not in order to make transactions in daily life.

If current or new decentralised crypto-currencies were used as payment instruments, there might be a risk that the Swiss National Bank would lose some of its ability to influence and balance the financial markets. However, the Swiss Federal Council declared this risk very low in a 2014 report. Although the market capitalisation of crypto-currencies has been rising significantly since then, they still have no influence on the ability to control inflation. The president of the Swiss National Bank also expressed this view in December 2017, adding that, nonetheless, central banks should monitor the situation.

Fraud and money laundering

What are the potential risks of virtual currencies in terms of fraud? How would these be addressed in your jurisdiction? Have any specific instances emerged in which virtual currencies have been used for money-laundering or other fraudulent purposes?

Bitcoin and other crypto-currencies often raise concerns of money laundering. Token holders are not known in person and there is no controller of a (public) blockchain infrastructure. That said, most crypto-currencies are pseudonymous rather than anonymous. Regarding the most frequently used Bitcoin and Ethereum blockchains, all assets related to a key address, as well as all transactions, are publicly visible, while the person behind this address is usually unknown. Therefore, regulators and prosecutors have possibilities to trace crypto-assets, starting from the genesis block, that may exceed cash assets or book money. Nevertheless, a profound knowledge of the technology and experienced IT forensic experts are needed to support the authorities in this task.

The protection of crypto-currency holders against fraud is primarily based on the cyber provisions in the Swiss Penal Code. Acts that are punishable under the code include:

  • obtaining data without authorisation;
  • gaining unauthorised access to a data processing system;
  • damaging data; and
  • committing (computer) fraud.

To reduce money laundering, the Swiss Anti Money Laundering Act imposes ‘know-your-customer’ obligations on individuals and legal entities that qualify as financial intermediaries and act on a professional basis, especially if they:

  • transfer liquid financial assets on behalf of a contractual party to a third party;
  • carry out the purchase and sale of currencies; or
  • carry out or support the transfer of money or assets (money transmitting) by accepting cash, cheques or other payment instruments.

A crypto-token will be classified as ‘money’ in the sense of the Anti Money Laundering Act if:

  • it may be used to obtain real goods or services; and
  • it is accepted by a community as mean of payment, especially if it is listed on major crypto-exchanges.