Positioning opportunities for banks in the context of digital assets – A market observation
At the beginning of January 2024, the Security and Exchange Commission (SEC) in New York approved the first Bitcoin spot ETFs for trading and distribution in the US. After extensive discussions, ETFs from providers such as VanEck, Blackrock and 21.Shares were approved, offering a supposedly larger investor base simplified access to digital assets. The term digital assets is used in this article to refer to blockchain-based assets such as Bitcoin or Ethereum.
The approval of ETFs in the US will further contribute to the availability of digital assets in the broader investor market. Financial institutions can therefore increasingly assume that the demand for digital assets will change. How have banks in Switzerland positioned themselves in the context of digital assets and what advantages and disadvantages does the individual positioning entail? Based on observations and interactions in the Swiss market, these are categorized in this blog post.
Basic positioning options for financial institutions
Based on our own observations, there are basically three different positions in the market:
- Observer: The observer keeps an eye on developments in the context of digital assets and tends to be reactive
- Explorers: The explorer has studied digital assets in depth, recognizes specific opportunities and has launched initial projects to validate the opportunities
- Discoverer: The discoverer is convinced of opportunities in the context of digital assets, has anchored these in the strategy, launched extensive initiatives and allocated significant resources (personnel, budget, prioritization) to these initiatives
These three variants of basic positioning provide an initial orientation and classification of financial institutions. It should be noted that positioning can be fluid. For example, financial institutions can also cover overlapping aspects of two positioning variants , e.g. an observer can anchor the topic of digital assets as part of its strategy but not yet have launched any implementation projects. The concept of Red and Blue Oceans can be used to assess which positioning variant becomes active at which market maturity. The Red Ocean is characterized by intense competition, which is often based on price. In contrast to the Red Ocean, the Blue Ocean is still underdeveloped, standards have not been set and competitive pressure is low.
What are the advantages and disadvantages of positioning and what does this mean in terms of the strategic anchoring of digital assets, the allocated resources (people, budget), the expertise and the expected time-to-market for financial institutions?
Observer – Everything in view
Observers first want to gain a comprehensive picture of digital assets and ideally identify confirmed customer demand. Developments in the context of digital assets are closely monitored, often as part of trend scouting by innovation units or as part of the periodic strategy review. An important criterion for the observer is concretely recognizable customer demand that has been confirmed in direct customer interaction. As long as this does not exist, resources are only deployed selectively, often in the context of trend monitoring and not in specific digital asset projects. The bank does not participate in shaping framework conditions, e.g. in the public consultation on DLT legislation in Switzerland.
This positioning offers the bank the security of entering a confirmed market, allocating resources in a market-relevant manner and relying on already defined framework conditions, e.g. of a regulatory nature.
On the other hand, an observer will only enter the market if competitors are already working the market, e.g. discoverers and possibly already explorers. The allocation of resources will be targeted when customer demand is confirmed (e.g. setting up a dedicated digital asset team to implement the projects, etc.), but the scope of resources will be significantly greater (e.g. several banks entering the market at the same time will reduce the supply of experienced digital asset specialists or providers will have long waiting times for onboarding & going live). This is mainly due to the fact that key elements have not yet been built up internally and therefore have to be procured on the market at short notice, such as expertise from specialists. In addition, due to the broad market cultivation by various players who are already active, high price pressure can be assumed, which could currently be observed in the context of ETF approval in the USA. For example, a purchase of digital assets on a central exchange, e.g. Coinbase, costs around 0.60% for an institutional investor; a Bitcoin ETF from BlackRock, on the other hand, is available for as little as 0.25%; a frequently observed pattern of behavior in a Red Ocean.
This positioning offers banks a comparatively high level of transparency and security with regard to customer demand, regulatory expectations and established providers. A large proportion of the banks in Switzerland can be attributed to this positioning.
Explorers – First pilot projects are initiated
The bank is closely following the topic of digital assets as part of its trend monitoring and has identified opportunities. Initial resources have already been allocated for the further analysis and evaluation of opportunities and the appropriate space has been created for the employees involved (time, budget, etc.). The necessary expertise is brought in from various organizational units, e.g. from innovation or product management. There is no dedicated organizational unit that deals exclusively with digital assets. From this setup, the explorer launches the first implementations, which are intended to validate a facet of the opportunity or a technical adaptation, generally with a very limited customer base. The lessons learned are analyzed and form part of further, more extensive initiatives.
What characterizes explorers, in addition to the dedicated resources provided, is the will to explore new terrain. This includes working on regulatory framework conditions, forming initial standards, e.g. in cooperation with providers, or validating a suspected customer demand. As an explorer, the bank can build on the initial experience of explorers and the market entry takes place in a less competitive market than an observer would have to do.
On the other hand, there is the (as yet) unconfirmed customer demand as well as the final form of standards or the main providers in the context of digital assets. These uncertainties must be addressed by the explorer, e.g. in the form of implementations as “fast boats”, a minimum viable product approach and the evidence-based assessment of the results.
In Switzerland, St. Galler Kantonalbank and Zuger Kantonalbank can be classified as explorers. Both institutions allocated resources early on to examine the opportunity of digital assets and launched an offering for a limited clientele in fall 2023. Both offers are available to a limited group of customers and include basic functionalities for accessing digital assets.
Discoverer – digital assets are strategically relevant
The discoverer has a deep conviction that digital assets represent a promising opportunity and are therefore strategically relevant. This conviction is based on the attributed potential of digital assets in terms of value growth, technology application or new business areas for the bank. Explorers are aware of the uncertainty regarding the regulatory framework, customer demand or key partners and even see this as an opportunity to secure a competitive advantage. To counter this uncertainty, individual opportunities are first analyzed in detail and validated with initial customers. Subsequently, resources are made available to a large extent in various areas and the projects are prioritized in the context of digital assets. One of the discoverer’s goals is to enter the market early and tap into a large part of the suspected market. By entering the market early, the discoverer hopes to achieve a high margin, as there are few comparable offerings (blue ocean). Offers are not aimed at a limited customer group, e.g. Family and Friends, but at complete customer segments such as retail customers.
In contrast to observers or, to a certain extent, explorers, discoverers have a higher level of uncertainty and success risks to manage: framing conditions are not defined, customer demand has not been validated and the digital asset industry as a whole does not have the desired level of maturity, as exemplified by the collapse of FTX 2022.
PostFinance can be described as a discoverer in Switzerland, which communicated access to digital assets for its customers as early as 2022. Due to its classification as a strategic growth area, PostFinance has set up a dedicated team to drive the offering forward within the company. The launch is planned for 2024.
Other institutions are currently working on their own offerings in the context of digital assets and it can be assumed that more players will be offering products and services in this context in 2024. Regardless of your own current positioning, it is essential to think about your own future role in the context of digital assets at an early stage in order to avoid having to spend extensive resources on comparatively small market shares in a price-led predatory war.
 Aus der Nische in den Mainstream: Bitcoin erlebt zweiten Big Bang (finews.ch); Retrieved 12.1.2024, from https://www.finews.ch/news/finanzplatz/60866-kommentar-bitcoin-sec-zulassung-spot-etf-krpytowaehrungen
 Blue Ocean Strategy (Gabler Wirtschaftslexikon, 2024); Retrieved 1/19/2024, from https://wirtschaftslexikon.gabler.de/definition/blue-ocean-strategie-120549
 Fee Structure (Coinbase, 2024); Retrieved 1/18/2024, from https://exchange.coinbase.com/fees#:~:text=Fees%20are%20calculated%20based%20on,between%200.05%25%20and%200.60%25.
 Bitcoin ETF: Jetzt startet der Preiskampf der Anbieter (Capital.de, 2024); Retrieved 18.1.2024, from https://www.capital.de/geld-versicherungen/bitcoin-spot-etf–jetzt-startet-der-preiskampf-der-anbieter-34357640.html
 Zuger Kantonalbank lanciert Angebot für digitale Vermögenswerte (Zuger Kantonalbank, 2023); Retrieved 12.2.2024, from https://www.zugerkb.ch/die-zugerkb/medien/medienmitteilungen/alle-mm-des-aktuellen-jahres/medienmitteilungen/2023/10/02/zuger-kantonalbank-lanciert-angebot-fuer-digitale-vermoegenswerte
 Bitcoin und Ethereum jetzt auch bei der SGKB (Finews, 2023); Retrieved 12.2.2024, from https://www.finews.ch/news/banken/60010-krypto-seba-sgkb-parternschaft-live-bitcoin-ethereum-zuger-kb-lukb
 Crypto giant FTX collapses into bankruptcy (BBC, 2022); Retrieved 19.1.2024, from https://www.bbc.com/news/business-63601213
 Postfinance bietet künftig Kryptowährungen an (Handelszeitung, 2023); Retrieved 12.2.2024, from https://www.handelszeitung.ch/banking/kooperation-mit-schweizer-kryptobank-sygnum-postfinance-bietet-kunftig-digitale-wahrungen-wie-bitcoin-an-590527
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