The FMA warns Liechtenstein will get hit by a recession. Short-term risks are especially high for startups without a stable financial base. But in the long-term, blockchain businesses might get a boost from this crisis.
The Coronavirus does not spare Liechtenstein, although the country is still better off compared to nearby Switzerland, Germany, and Italy. So far, 81 people have tested positive for the virus (reported 21st April).
Schools have been closed for more than one month, businesses have moved to home office, and social distancing is changing daily lives. Like in other countries, the economy is taking a hit.
All of this happens at a time where global growth is slowing down anyway, which is also affecting Liechtenstein. According to the Liechtenstein-Institute, the national economy has lost momentum already before the onset of the corona-crises.
From here, things will get worse. This crisis will certainly leave its mark on Liechtenstein’s business landscape. The Financial Market Authority Liechtenstein (FMA) has announced that “a massive recession, in Liechtenstein as well as on a global scale, is inevitable.” Even if the government can take counter-measures, it won’t be possible to save all companies and jobs while the economy is getting worse, says the FMA.
Short-term risks: Blockchain businesses need to consider their financial base
Especially startups that don’t have a stable financial base and rely on external funding need to come up with a backup plan in case the crisis will last for several months. Attracting additional funding will become more challenging in the next months, as venture-capital providers will keep a tighter eye on their portfolio risks amid the looming recession.
Also, businesses that already have a product in the market, but at an early stage, are finding themselves in a dangerous place. At that stage, scaling sales is what matters to most businesses to get out of the red and become profitable. However, in the coming months, increasing sales will be challenging, especially in B2B-busienssses, and even more so with a new product.
A way out might be the government’s liquidity support. Liechtenstein’s government has announced a 100-million CHF stimuli package for the economy, including measures to support smaller businesses.
The crisis will be long-term positive for blockchain
All of that also brings us back to Liechtenstein’s vision as a future leader in the world of blockchain. Up until now, Liechtenstein is heavily dependend on its financial and banking secros, which amount for as much as one third of GDP. As a result, Liechtenstein is overly exposed to the risks of the global financial system.
The reason why Liechtenstein decided to establish itself as a global blockchain hub, primarily through innovation-friendly laws and institutions, was to prepare its financial sector for the future, but also to diversify away from its dependence on just one industry.
This strategy could pay off in this crisis. While the financial industry will undeoubtely take a blow from the economic preassure of the shutdown, blockchain, and the tech-industry in genereal, could actually become a winner of this crisis in the medium- to long-term (in the short-term, almost everyone will be a loser).
As businesses, institutions and private households are now being forced to use digital technologies, a shift in mindset could lead to increasing future demand for digital technologies. Blockchain, as a core infrastructe technology of the digital ecosystem, could massibely benefit from this development.