After the bill was successfully passed by the Bundestag, it still requires approval from the Bundesrat to finally clear the way for institutional crypto funds in Germany. With such prospects, the already bullish cryptocurrency market is expected to gain even more momentum.
An Additional €350 Billion Could Flow into the Cryptocurrency Market
On April 22, the Bundestag officially approved the Fund Placement Act. Before it comes into force on July 1, 2021, the bill must only pass through the Federal Council. The new regulation implements an EU directive aimed at facilitating cross-border distribution of investment funds through unified provisions. Subsequently, funds will be able to invest up to 20% of their managed assets in crypto assets.
Bundestag: Cryptocurrencies Are Becoming Official Financial Instruments
Experts believe that the new regulation could enable significant investment capital to flow into the cryptocurrency market. Sven Hildebrandt, head of Hamburg-based consulting firm Distributed Ledger Consulting, estimates the theoretical potential influx at €350 billion. This amount of capital is currently associated with approximately 4,000 domestic special funds that can now be released for investments in cryptocurrency.
This corresponds to one-fifth of the current total market capitalization of all cryptocurrencies in circulation, which currently stands at around €2 trillion, Hildebrandt told Borsenzeitung. In comparison, the market capitalization of Bitcoin is currently nearly €840 billion, making the potential capital inflow truly substantial.
As Hildebrandt explains, this won't happen overnight, but it represents the largest investment instrument in Germany.
What Are Special Funds?
Unlike so-called public funds, special funds are not accessible to private investors and are intended solely for institutional investors. These funds have greater freedom in their investment strategies, allowing them to make riskier but potentially more profitable investments. Both special funds and mutual investment funds are regulated by BaFin (Federal Financial Supervisory Authority).
Crypto Enthusiasts Criticize Stricter Regulations
Although crypto enthusiasts tend to criticize the associated stricter regulations, Hildebrandt sees it as an advantage, as foreign institutional investors perceive such investment forms as safer.
The new law has also received approval from the Federal Association of Alternative Investments (BAI). However, BAI Managing Director Frank Dornseifer regrets that the new rules will only apply to special funds and not to mutual investment funds, which could unnecessarily restrict capital from private donors.
Germany: A Significant Signal Towards the Cryptocurrency Market
One thing is certain: the new law will open the gates for a substantial influx of new capital into the cryptocurrency market. Analysts expect immense interest from institutional investors, benefiting not only existing special funds but also new funds that have yet to be established by institutions such as banks, insurance companies, and pension funds. The new law will further strengthen Germany's position as a location for financial investments and serves as an important signal for the cryptocurrency market.
Thanks to the New Law, German Banks Can Hold Bitcoins
The establishment of German crypto funds has been a topic of discussion within the crypto community for a long time, especially since other countries have already launched their Bitcoin funds. The New Zealand pension fund invests part of its assets in Bitcoin, and the first approved Bitcoin ETF in Canada has already achieved significant success.
Including cryptocurrencies in special funds represents not only a new investment opportunity for institutional investors but also a significant step towards their acceptance.
German Crypto Funds Predict a Bullish Summer
The new regulation is the result of immense efforts to legitimize crypto assets in Germany. Earlier last year, changes were made to the law that gave banks the green light to purchase, store, and trade cryptocurrencies. With the new law, the status of crypto assets among the various classical investment options is further solidified.
As a result, German crypto funds signal strong confidence in the cryptocurrency market, which also motivates German investors to engage more actively with cryptocurrencies. These positive developments from Germany should provide additional momentum to the already optimistic cryptocurrency market. By July at the latest, it will be clear how high the demand from institutional investors will be.
