There’s a strong level of interest in crypto finance in Luxembourg’s financial centre, according to a survey carried out by the Luxembourg House of Financial Technology and PwC. The Grand Duchy nevertheless has yet to develop the necessary infrastructure to be a leading crypto finance centre.
The survey, entitled “Crypto-assets: Paradigm shift or short-term trend?” was carried out in the last quarter of 2021 and was presented on Wednesday at a Luxembourg event hosted by PwC.
Action must be taken to avoid Luxembourg losing out, as developments are moving quickly, experts said. Those who prefer to await EU crypto regulation may find it will take longer than they have.
‘Surprised and actually amazed’
Thomas Campione, blockchain and crypto asset leader at PwC, said he found himself “surprised and actually amazed by the level of responsiveness from the market”. The survey found that 84 percent of respondents see potential in crypto assets, with some seeing more than others.
Jérôme Verony, LHoFT’s research and strategy manager, reported that two thirds of respondents saw either “some” or “high” potential from the crypto asset class. He said he found this particularly significant given the profile of the respondents. Some 60 percent considered themselves as either “expert” or “very knowledgeable” about crypto assets.
Zero sum game
Luxembourg is not a leader in the global crypto finance industry. That role is reserved for the United States. Campione expressed his surprise at the gap between the US and the rest of the world, recalling that “the US has no harmonised framework, because we hear a lot about the fact Europe needs a harmonised framework to build traction.” However, the only EU countries at the top of the list are Germany and France, both of whom already have a “bespoke regime” governing crypto assets.
Nasir Zubairi, CEO of LHoFT, said he is “confident that this is a zero sum game. There are going to be winners and there’s going to be losers,” he said. He said that “Luxembourg has to make a bit of a choice as an industry and obviously on an individual firm level.”
Steven Libby, PwC’s EMEA asset management leader, spoke of a huge level of interest from investors, making it clear that action needed to be taken. “It’s extremely important that Luxembourg takes a clear position with this new opportunity.”
New services by 2025
Professor Philipp Sandner, head of the Blockchain Centre at the Frankfurt School, presented an overview of crypto developments. He recounted his observation that it takes the financial industry in Germany 18 months to really understand a crypto-specific law and figure out what they can do with it.
Sandner said the EU’s forthcoming Markets in Crypto-Assets (MiCA) regulation, would “regulate the stablecoins, the central crypto assets, and also things like CO2 on blockchain. He predicted it will be 2025 before companies start to roll out new services.
‘We can’t wait for MiCA’
Referring to older data, Sandner pointed out that even then, Bitcoin was more than twice as large as the largest bank on earth.
In a panel discussion on Wednesday, Nestor Vernier, General Manager of Swissquote Bank Europe SA, called on the Luxembourg fund industry to launch products allowing direct and indirect exposure to crypto.
“The market is there, and if it’s not being developed in Luxembourg, it will be developed in the UK, in Ireland or in Switzerland,” he said.
While everyone is waiting for MiCA, the EU regulation, Vernier said that “we can’t really wait on MiCA because everyone is moving ahead. And MiCA is probably coming too late.”
Regulatory focus
Karen O’Sullivan, head of department for innovation, payments, market infrastructures and governance of Luxembourg’s financial regulator CSSF, referred to their recent white paper on Blockchain/DLT, an FAQ document that is “based on the discussion that we’re having so far.” She said crypto is “clearly something that we’re putting a lot of focus on for the moment.”
Ananda Kautz, head of innovation, digital banking & payments at the Luxembourg banking association ABBL, agreed with O’Sullivan that crypto developments will go in parallel to efforts by Luxembourg banks to work with blockchain, also called distributed ledger technology.
“Use cases are really being adopted in Luxembourg. That’s a really good sign,” said Kautz.
Massive blockchain adoption
Frank Desvignes, founding partner of True Global Ventures, discussed his firm’s vision that “the first use case that will scale and that will drive the massive adoption by the population of blockchain is definitely gaming. He said that 85 percent of the gaming industry will become a blockchain at some point, or be enabled by the blockchain technology.
Acknowledging the public view of crypto’s volatility, Nicolas Louvet, CEO of Coinhouse and Coinhouse Custody Services, described his firm’s crypto savings plan, a product with a guaranteed yield through the use of “stablecoin”, a form of digital currency typically pegged to the US dollar or another “fiat” traditional currency.