Switzerland's Digital Currency Strategy: Beyond Stablecoins to Bitcoin Adoption

Executive Summary

In the last few years, stablecoins have gradually then suddenly emerged as a critical bridge between traditional finance and blockchain-based ecosystems, creating a parallel settlement and transaction infrastructure with implications on monetary sovereignty, impacting directly national currencies. New regulations are defined to handle this uncharted environment. They will need to reach a balance between innovation, new realities, financial stability, and compliance to legacy systems.

As the digital currencies landscape is rapidly evolving since Bitcoin's invention, global economies are now officially establishing strategies that reflect their economic structures and monetary objectives. Among them, the United States seeks to expand USD dominance through dollar-denominated stablecoins, and the European Union is working on its digital euro initiative to compete with US monetary hegemony and improve its unified currency for the digital age.

Switzerland would benefit only marginally from promoting international adoption of CHF stablecoins, and doing so might even hurt its economy overall. Instead, Switzerland has an opportunity to focus on positioning itself as a strategically neutral actor in this new landscape, while embracing the Bitcoin industry and economy. Such approach would protect Switzerland's export-dependent economy from excessive currency appreciation while positioning the country at the forefront of the emerging digital asset paradigm. For Swiss policymakers and industry leaders, understanding these dynamics is crucial for navigating the intersection of monetary policy, technological innovation, and economic competitiveness in the digital age.

As we will establish in this Intelligence Brief, Switzerland should focus without delay on: • Holding Bitcoin as national reserve asset, like gold reserves, for independence and negotiating leverage. • Clearly treating Bitcoin regulation like gold, not currency, with specialized oversight separate from FINMA's currency framework. • Refining existing FINMA's strict stablecoin rules, as they accidentally protect Switzerland from harmful CHF appreciation. • Building and maintaining unmatched Bitcoin infrastructure leadership, such as institutional custody and services that set global standards.

Context: Where we stand — And how we got there

The stablecoin concept emerged from a fundamental challenge: price volatility. While Bitcoin offered revolutionary technology for peer-to-peer transactions, its price fluctuations made it impractical for commerce or as a stable unit of account. The solution came in 2014 with the creation of Tether (USDT).

Tether's innovation was to create a cryptocurrency token backed 1:1 by US dollars held in reserve, combining the stability of fiat currency with the efficiency of blockchain transactions. Initially built on the Bitcoin blockchain, Tether later expanded to Ethereum and other networks as the technology matured.

As cryptocurrency exchanges proliferated globally, many struggled to maintain traditional banking relationships due to regulatory uncertainty and compliance challenges. Tether filled this gap by providing a dollar-equivalent token that could facilitate trading without requiring direct access to the US banking system. Exchanges could hold USDT reserves instead of maintaining dollar bank accounts, significantly simplifying operations in jurisdictions where banking access was limited. Traders could fund or withdraw from their accounts faster and more easily, engage in arbitrage across platforms, or take profits, without touching a bank account.

The Libra Wake-Up Call: US and Swiss Perspectives

The 2019 announcement of Facebook's Libra project, later rebranded as Diem, marked a pivotal moment in global digital currency development. Libra's proposed global reach, backed by Facebook's 2.7 billion users, triggered unprecedented regulatory panic in Washington and Brussels. The prospect of a network of private non-banking companies potentially issuing a global reserve currency that could bypass traditional monetary policy tools sparked immediate congressional hearings and regulatory threats.

This panic forced rapid regulatory responses worldwide, but it also created an unexpected opportunity for Switzerland. As regulatory pressure mounted and Libra faced existential threats in the US, the project relocated to Switzerland, recognizing FINMA's then more measured, principled approach. While Diem ultimately collapsed under continued regulatory pressure and internal disagreements, its Swiss chapter demonstrated both the country's regulatory attractiveness and the limits of what even well-funded private stablecoin projects can achieve against determined government opposition.

The Libra episode forced FINMA to develop its stablecoin framework more rapidly than originally planned, leading to both innovative regulatory solutions and some of the overly complex requirements that now constrain Swiss stablecoin development. The experience illustrated that private stablecoin can only succeed so far without an eventual regulatory acceptance from major jurisdictions, and in the case the US.

GENIUS Act Domino

By 2025, Tether has grown to dominate the stablecoin market with approximately $164 billion in circulation, representing 60-70% of the total stablecoin market capitalization. This success spawned numerous competitors, including USD Coin (USDC) with $65 billion in circulation, but Tether's first-mover advantage and network effects have proven remarkably durable and impactful at the highest levels of the US economy.

Earlier this year, media attention was focused on stablecoins following the passage of the US GENIUS Act. This legislation is incredibly significant as it establishes clear regulatory frameworks for stablecoins while explicitly separating them from securities (SEC) or commodities (CFTC) classification, thereby eliminating the previous dual-regulation uncertainty.​​​​​​​​​​​​​​​​

Until then, USD stablecoins, and Tether in particular, were operating in a regulatory limbo, manipulating dollars and Treasury bonds at the level of nation states, fuelling dollarisation throughout the world, but on the margin of proper recognition as its own category, or any recognition at all.

The situation was somewhat convenient for the US government, as Tether was until recently semi-informally established in the British Virgin Islands, unofficially serving US interests as a collateral byproduct of its own, out-of-sight and out-of-reach in some in-between regulations no man's land. The GENIUS Act proved the US government is now officially welcoming Tether and other stablecoins issuers as full-fledged financial participants to the economy, if they comply to the new tailor-made rules.

The Switzerland Exception: Deposit Tokens, Stablecoins, Local Coins

Thanks to its pioneer position in the ICO and Libra innovation waves, Switzerland's financial sector already distinguishes various types of tokens, including stablecoins and deposit tokens, in ways that reveal both regulatory sophistication and potential institutional digital currency adoption.

Ongoing trials involving major banks are also exploring the tokenisation of commercial bank deposits for instantaneous institutional settlement, potentially revolutionizing interbank payments.

Deposit tokens represent claims on traditional bank deposits that have been tokenized for blockchain settlement, remaining within existing banking regulatory frameworks. These deposit tokens differ from stablecoins in that they represent traditional bank money rather than separate digital assets, avoiding some stablecoin regulatory requirements while enabling blockchain efficiency.

This distinction matters strategically. While stablecoins require extensive new regulatory frameworks and face scaling barriers under FINMA's strict requirements, deposit tokens operate within established banking law and can scale with institutional adoption. For Switzerland's wholesale financial markets, deposit tokens may offer a practical path to blockchain settlement efficiency without the regulatory complications of retail stablecoins.

However, for the time being, deposit tokens still remain limited to institutional, permissioned networks and cannot serve as general-purpose digital currencies for retail or international use. They solve specific institutional problems without addressing broader digital currency adoption challenges.

CHF Stablecoins

Despite regulatory challenges, Switzerland hosts several CHF-denominated digital currencies that demonstrate the country's technological capabilities while illustrating scaling constraints:

Sygnum Digital CHF (DCHF) represents the institutional gold standard, a bank-issued stablecoin backed 1:1 with CHF held at the Swiss National Bank. Its use in real-world commerce has demonstrated practical viability. However, DCHF remains primarily focused on institutional settlement and tokenized asset trading rather than mass retail adoption, partly due to unrealistic regulatory constraints on broader distribution.

Frankencoin (ZCHF) offers a decentralized alternative, using over-collateralization of cryptoassets and original automatic mechanisms to maintain its CHF peg. Due to its relatively limited liquidity, its primary use case remains DeFi applications rather than broader economic activity. The protocol's community governance model provides an alternative to centralized control but cannot overcome the fundamental scaling challenges facing CHF-denominated systems.

CryptoFranc (XCHF), issued by Bitcoin Suisse, provides an ERC-20 token backed by physical CHF banknotes rather than bank deposits. XCHF serves trading and settlement functions while demonstrating an alternative collateral model that avoids some banking regulatory complexities.

FINMA's Overregulation

FINMA's 2024 guidance on stablecoins demonstrates how regulatory perfectionism can become counterproductive. The requirement for "full identification of all stablecoin holders, including intermediaries" creates operational burdens not found elsewhere globally. This extreme approach, where Switzerland imposes stricter requirements than international standards, may protect against regulatory risk but effectively prevents any Swiss stablecoin scaling.

The complexity extends to bank guarantee criteria, making it difficult for stablecoin issuers to operate without full banking licenses. While this ensures high standards, it also creates barriers that favor large, established institutions over innovative startups. The result is a regulatory framework that prioritizes safety over competitiveness and growth. One might even say "doing nothing" over "risking anything".

Ironically, this overregulation may serve Switzerland's broader strategic interests by discouraging excessive focus on CHF stablecoins. If FINMA's strict approach prevents Swiss stablecoin scaling, it inadvertently supports the case for focusing on Bitcoin adoption instead.

LVGA Loophole

The City of Lugano's LVGA token program illustrates both the demand for digital currency systems and the constraints imposed by Switzerland's regulatory framework. LVGA maintains a CHF peg through the city's program but operates as a loyalty/reward point system (similar to store gift cards or airline miles) rather than a regulated financial product to avoid FINMA oversight.

This structure demonstrates creative granular workarounds to regulatory restrictions while revealing underlying demand for CHF-denominated digital systems. Users can only spend or redeem LVGA with approved merchants and city services, creating a functional local digital currency. However, the system's closed-loop nature and restrictions on free convertibility limit its scaling potential and economic impact within the city.

To maintain this strict legal equilibrium, the city of Lugano requires end-users to agree to TOU when installing the official wallet, which also allow the issuer to blacklist wallets and/or limit transfers to approved addresses.

The program shows potential threats brought by centralized digital currencies, which could be used as unprecedented tools of control and censorship on larger populations across locales.

An interesting point to note: the LVGA program was enabled thanks to a technical partnership between the city of Lugano and Tether.

Switzerland's Unique Strategic Position

Switzerland's economic structure creates fundamentally different incentives and constraints from both the US and EU. As a small, open economy heavily dependent on exports, Switzerland benefits from a currency that serves as a safe haven without becoming so strong as to undermine competitiveness.

The Swiss franc's role as a store of value during global uncertainty has historically created appreciation pressures that the Swiss National Bank has actively countered to protect exporters. Any policy that increases international CHF demand, including successful stablecoin adoption, could complicate these efforts and potentially harm export-dependent sectors.

This creates a strategic dilemma: digital currency innovation that succeeds too well could undermine the export economy it aims to support.

The Bitcoin Alternative

Bitcoin presents therefore a fundamentally different value proposition for Switzerland. Rather than seeking to expand CHF usage globally, Bitcoin adoption offers a way to participate in digital asset appreciation without directly strengthening the franc against trading partners.

This distinction matters enormously for Swiss economic policy. The SNB's conservative approach to reserves and Switzerland's fiscal responsibility create constraints that make CHF stablecoins less competitive globally while making Bitcoin adoption more strategically sensible.

Bitcoin's characteristics align well with Switzerland's traditional strengths. As a neutral, politically stable country with strong institutions and rule of law, Switzerland is naturally positioned to serve as a custodial and trading hub for Bitcoin, much as it has for gold and other reserve assets.

Unlike CHF stablecoin promotion, which would inevitably create appreciation pressure on the franc, Bitcoin adoption offers several advantages:

Diversification Benefits
Bitcoin provides portfolio diversification for both private and potentially public sector holdings, reducing dependence on increasingly fragile USD-backed systems while providing hedge against both inflation and currency depreciation.

Technology Leadership
Embracing Bitcoin positions Switzerland at the forefront of digital asset innovation, attracting talent, investment, and businesses to the "crypto nation" ecosystem already established in several cantons.

Policy Flexibility
Unlike promoting CHF stablecoins, Bitcoin holdings provide value capture without direct impact on franc exchange rates, preserving the SNB's ability to manage currency competitiveness.

Protection from Monetary Fragility
As US and EU monetary policy becomes increasingly accommodative and debts levels rise, Bitcoin offers a hedge against potential USD and EUR instability that could affect stablecoins reliability.

Strategic Reserve Asset for a Neutral Nation

Switzerland's optimal digital currency strategy differs fundamentally from those of larger economies seeking to expand monetary influence. The country's conservative monetary policy, export-dependent economy, and commitment to financial privacy create opportunities that require a differentiated approach.

Given the strategic arguments against CHF stablecoin promotion, FINMA's current restrictive approach may have inadvertently served Switzerland's interests by discouraging excessive investment in a potentially counterproductive direction.

Switzerland should build on its already existing Bitcoin regulatory success by becoming the global leader in institutional Bitcoin adoption.

A more streamlined approach would differentiate stablecoins and Bitcoin as very distinct assets, and perhaps even delegate oversight of the Bitcoin industry to a specialized authority or dedicated department. This would reduce regulatory burden while building more forward-focused oversight.

Public Sector Exploration:
The SNB should consider experimental Bitcoin holdings as part of reserve diversification, signaling policy leadership while gaining practical experience.

Infrastructure Investment:
Support development of sophisticated institutional-grade Bitcoin custody, trading, and state-of-the-art service infrastructure that leverages Switzerland's existing financial sector strengths.

International Standard-Setting:
Leverage Switzerland's neutral status and regulatory expertise to facilitate international cooperation on Bitcoin standards and interoperability frameworks.

Global Panorama: US Exception and Monetary Policies Divergence

Acting as magnifying mirrors, stablecoins reflect both the strengths and shortcomings of the fiat currency they emulate. Global preference for US dollar benefits USD-denominated networks, but its weaknesses also affects them.

Differences in monetary policies between jurisdictions shed light on fundamental structural imbalances in the global financial system inherited by stablecoins.

This asymmetry also extends to sovereign debt management. For instance, the US operates with what amounts to unlimited borrowing capacity, recently raising its debt ceiling to approximately $41 trillion. Additionally, the Federal Reserve reduced US bank reserve requirements to 0% in March 2020, effectively enabling unlimited money creation by American banks. For reference, Swiss banks must maintain reserves of 4% of relevant liabilities.

This fiscal extreme flexibility, combined with zero reserve requirements, creates conditions where USD stablecoins can expand rapidly without meaningful constraints on underlying dollar creation.

For Switzerland and other fiscally conservative nations, this dynamic creates concerning dependencies. CHF stablecoins backed by traditional Swiss banking reserves operate under significantly stricter constraints than their USD counterparts. The Swiss system's emphasis on prudent banking and fiscal responsibility, while structurally sound, cannot compete with the unlimited issuance capabilities enabled by US monetary policy.

More troubling, the fragility of USD stablecoins becomes apparent when considering long-term store of value dynamics. If users begin questioning the dollar's purchasing power stability due to unlimited debt issuance and zero reserve banking, demand for USD stablecoins could collapse rapidly. While it does not appear to be a problem as long as USD stablecoins are exclusively used as medium of exchange, it could have dramatic consequences for long term holders as store of value.

Illusion of Stability

With this in mind, it can be concluded Switzerland's dependence on such systems for digital payments infrastructure would create significant vulnerability to US monetary policy decisions.

This monetary policy divergence reveals stablecoins' fundamental contradiction: they promise "stability" while depending on increasingly unstable underlying monetary systems. The USD's reserve currency status masks growing structural imbalances, but Switzerland cannot assume this status will persist indefinitely.

A prudent Swiss digital currency strategy will need to account for potential USD weakness while avoiding the trap of promoting CHF stablecoins that could harm export competitiveness. In contrast, Bitcoin's independence from any single monetary authority could provide a hedge against both USD fragility and CHF appreciation pressures.

Soft Power and Geopolitical Context

The United States operates from a position of monetary supremacy, with the dollar serving as the world's primary reserve currency and settlement medium. This dominance becomes more entrenched through USD stablecoin adoption, which extends dollar utility into digital native applications while maintaining dependence on US monetary policy.

USD stablecoins already facilitate global commerce, cross-border payments, and serve as the backbone of decentralized finance. These digital dollars reinforce the US monetary influence while reducing friction in international transactions.

The network effect favoring USD stablecoins are substantial and self-reinforcing. Cryptocurrency exchanges worldwide use USDT and USDC as base trading pairs. DeFi protocols predominantly price assets and provide liquidity in USD terms. Cross-border remittances increasingly flow through USD stablecoin rails, bypassing traditional correspondent banking networks while maintaining dollar unrivalled hegemony.

For the US, promoting dollar stablecoins strengthens rather than threatens monetary sovereignty. Each digital dollar in circulation represents demand for dollar-denominated assets and reinforces the currency's international role. The strategy aligns perfectly with US economic interests: expanding global dollar usage while capturing the efficiency gains of blockchain-based settlement.

USD-denominated stablecoins enable anyone, anywhere in the world, to access digital dollars and online banking services without requiring a bank account, and without the burden of physical banknotes.

The US regulatory approach reflects this strategic alignment. By providing clarity for USD stablecoins while potentially using extraterritorial enforcement against foreign alternatives, American policy supports dollar dominance in digital assets just as it does in traditional finance.

EU Competitive Response

The European Union faces a very different, defensive challenge against USD stablecoin dominance. The MiCA framework represents an attempt to create regulatory space for EUR-denominated alternatives while preventing complete digital dollarization of European commerce.

MiCA's comprehensive approach establishes reserve requirements, operational standards, and supervisory mechanisms. This regulatory clarity aims to encourage EUR-denominated stablecoin development while ensuring financial stability and consumer protection.

However, the EU's strategy faces significant headwinds. Current euro-pegged stablecoins total only $480 million in market capitalization—less than 1% of the USD stablecoin market. The network effects favoring dollar-denominated digital assets, even among EU citizens, create substantial barriers to EUR stablecoin adoption, regardless of regulatory support.

Like the US, the EU may eventually need to impose its own requirements and regulations on Swiss institutions to prevent regulatory arbitrage, potentially forcing Switzerland to choose between EU market access and regulatory independence. This pressure illustrates how larger jurisdictions can constrain smaller nations' policy choices through market access leverage.

Centralization Privacy Risks

China's approach to digital currencies provides a stark illustration of how governments can leverage digital payment systems for comprehensive financial control. While developing its Central Bank Digital Currency (CBDC), the digital yuan, China simultaneously maintains effective control over Alipay and WeChat Pay—payment systems that, while not technically stablecoins, function as digital currency intermediaries for hundreds of millions of users.

This dual approach demonstrates sophisticated financial control mechanisms. The digital yuan provides direct government oversight of transactions, complete with programmable features that can restrict spending by location, time, or merchant type. Meanwhile, Alipay's integration with China's social credit system shows how private payment platforms can enforce government policy through financial access restrictions.

The Chinese model reveals how digital payment systems can become tools for comprehensive social control, going far beyond traditional financial regulation. Users can find their payment access restricted based on social credit scores, political activities, or other behavioral factors. This integration of financial infrastructure with social control mechanisms represents the extreme end of what becomes possible when digital currencies operate under centralized control.

Privacy and Civil Liberties

As stablecoins mature from experimental technologies to critical financial infrastructure, their centralized nature raises similar concerns about government control and financial surveillance, though typically less extreme than China's model.

This centralization enables unprecedented financial surveillance capabilities. Stablecoin issuers can freeze accounts of political dissidents, monitor or block transactions, or provide detailed activity histories to authorities upon request.

These risks extend beyond authoritarian regimes. Even democratic governments might be tempted to use stablecoin control mechanisms to easily restrict certain types of transactions, or monitor citizens financial behaviors.

In recent months, several examples such as online age verification in the UK, online chat control in the EU, and e-ID in Switzerland, have been topics of debates and concerns among privacy and human rights advocates.

For Switzerland, with its historical commitment to financial privacy and individual liberty, these considerations carry particular weight. The country's banking secrecy traditions reflect deeper values about personal autonomy and protection from government overreach.

Consolidation of Infrastructure

The evolution toward dedicated blockchain infrastructure represents a concerning trend toward centralization. Circle's newly announced its own blockchain Arc, optimized specifically for USDC with the stablecoin serving as the native gas token, and Tether's planned Stable blockchain for USDT demonstrate how major stablecoin issuers are pursuing greater control over their ecosystems.

For stablecoin issuers, dedicated blockchains provide complete control over network parameters, fee structures, and governance decisions while capturing all transaction fees. This trend is welcomed by the US government, as having fewer, more centralized interlocutors simplifies regulatory oversight and enforcement compared to managing stablecoins across dozens of different blockchains.

For users, these dedicated chains promise faster transactions, lower fees, and better integration with stablecoin-native applications. However, this convenience comes at the cost of reduced decentralization and increased systemic risk. If dominant stablecoins migrate to their own chains, other Layer-1 protocols may lose liquidity and utility, potentially strangling innovation in the broader blockchain ecosystem.

For now, Circle and Tether have assured USDC and USDT will remain multi-chain, as Arc and Stable are meant to complement, not replace, existing chain deployments. They both benefit from keeping their network available on high-liquidity, high-activity chains.

Jurisdictional Competition

The regulatory landscape for stablecoins reveals dangerous fragmentation that serves the interests of dominant powers at smaller nations' expense. The US GENIUS Act approach creates regulatory clarity for USD stablecoins while potentially using extraterritorial enforcement to disadvantage foreign alternatives. In the European Union, MiCA legal framework defines comprehensive operational standards.

Switzerland faces unique pressures in this fragmented landscape. FINMA's approach, while innovative, may eventually face challenges from both US extraterritorial enforcement and EU regulatory pressure. The absence of global coordination creates space for regulatory arbitrage by dominant powers, potentially forcing smaller jurisdictions to choose between competing frameworks rather than developing optimal domestic policies.

But this shifting landscape also presents Switzerland with a brief opportunity to set its own rules and reassert leadership as both a technological and financial powerhouse.

Protecting Swiss Sovereignty

The fragmentation of international stablecoin regulation creates risks of external imposition, whether through US extraterritorial enforcement or EU regulatory pressure. Building robust Bitcoin infrastructure is a vote for a neutral nonpartisan global standard, and provides Switzerland with alternatives that remain outside foreign regulatory control.

This approach preserves Swiss policy independence while still positioning the country at the forefront of digital asset development. Rather than competing directly with USD stablecoins or conforming to foreign regulatory frameworks that may not serve Swiss interests, the country should embrace Bitcoin as a strategic political and financial hedge against both USD and EUR monetary fragility and the risks of centralized digital currency control.

For Swiss policymakers and business leaders, the choice is clear: embrace Bitcoin financially and technologically, as a step toward the future of traditional monetary policy and the foundation for continued financial sector leadership, while avoiding the currency appreciation trap that successful CHF stablecoins promotion would create. This strategy positions Switzerland to capture emerging opportunities while protecting the policy independence and individual freedoms that define Swiss competitive advantages in the global economy.

Conclusion and Strategic Recommendations

Rather than competing with USD and EUR stablecoins or trying to conform to foreign frameworks, Switzerland should pursue its own distinct strategic priorities. To position Switzerland optimally in the evolving digital monetary landscape, policymakers should focus on four critical actions:

First, establish Bitcoin as a Strategic Reserve Asset:

Switzerland should follow its gold reserve model by directly holding significant Bitcoin reserves at the national level. This positions Switzerland as a truly independent nation with negotiating leverage against both USD-dominated digital systems and potential EU regulatory pressure, while avoiding the currency appreciation risks of promoting CHF stablecoins globally.

Second, streamline Bitcoin Regulation Through Specialized Oversight:

Switzerland should treat Bitcoin regulation more like gold (as a reserve asset) rather than like CHF (as a currency), potentially transferring Bitcoin oversight from FINMA to a specialized entity similar to how the US uses the OCC for stablecoins. This would reduce regulatory burden while maintaining appropriate oversight, allowing Switzerland to become the global leader in institutional Bitcoin adoption.

Third, leverage FINMA's Restrictive Stablecoin Approach as Strategic Advantage:

Rather than loosening stablecoin regulations, Switzerland should embrace how FINMA's strict requirements inadvertently protect the country from excessive CHF stablecoin promotion that could harm export competitiveness. This "regulatory accident" supports the optimal strategy of Bitcoin focus over CHF stablecoin scaling.

Finally, build Bitcoin Infrastructure Leadership While Maintaining Monetary Policy Flexibility:

Switzerland should invest in becoming the global center for institutional Bitcoin custody, trading, and high-quality technological services, leveraging existing financial sector strengths while preserving the SNB's ability to manage franc competitiveness. This allows participation in digital asset innovation without constraining traditional monetary policy tools or creating dependencies on foreign-controlled stablecoin systems.

The Swiss Bitcoin Institute promotes sound, independent research on Bitcoin. Opinions expressed by Fellows are theirs and do not necessarily reflect those of the Swiss Bitcoin Institute.