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New German Legislation to Allow Institutional Investment Funds Gain Exposure to Crypto

UTC by Bhushan Akolkar · 3 min read
New German Legislation to Allow Institutional Investment Funds Gain Exposure to Crypto
Photo: Depositphotos

Once the legislation comes into force, we can expect a flood of institutional money anywhere around 350 billion Euros coming to the crypto market.

In a major development, Germany is working on new legislation that allows institutional investment funds of “Spezialfonds” to allocate 20% of their funds to crypto. The legislation is likely to come into force starting July 1 this year.

This legislation will provide a major boost to Germany’s position in the crypto-financial hub. Many experts think that it will further help to nurture the crypto industry while legitimizing the cryptocurrency asset class. The Decrypt publication was the first to report this news. Speaking to the publication, German parliamentarian Frank Schäffler told:

“The addition of crypto assets in Spezialfonds is an important step for their acceptance. Here, the law is going in the right direction and we expressly welcome it”.

As per the report, the Bundestag – Germany’s federal parliament cleared the law last Thursday. It will further move to Germany’s Federal Council for rubber-stamping. Decrypt reports that the law is currently applicable to Spezialfonds along with the new ones set up by institutional investors such as insurance companies and pension funds.

As per the new legislation, a total of 4000 investment funds shall be eligible to invest in Bitcoin and other digital currencies. Sven Hildebrandt, CEO of Germany-based Distributed Ledger Consulting said:

“This is damn huge”. Around €1.2 trillion ($1.8 trillion) is invested into Spezialfonds, which have fixed investment conditions, and “right now, 0% of the funds are invested [in cryptocurrencies], because they’re just not allowed.”

Major Institutional Money to Come to Crypto with New Legislation

As the new legislation comes into effect on July 1, some huge institutional money should flow into cryptocurrencies. Hildebrandt notes that even if Spezialfonds allocate just 1% of their funds, the impact could be enormous. A 1% fund allocation would mean €350 billion enterings into crypto.

“This won’t happen overnight, but we are talking about the largest investment vehicle that we have in Germany—literally all the money is in there,” he said.

The Spezialfonds investment funds draw its comparison with the Special Investment Funds (SIFs) in Luxembourg, and Qualifying Investor Funds (QIFs) in Ireland. Their flexible nature and less restrictions on borrowing/leveraging make them attractive to institutions. Moreover, a robust regulatory framework also provides additional assurance to investors.

The crypto landscape in Germany has taken a turn for the good over the last year. At the beginning of 2020, Germany introduced a law allowing banks to sell and store digital currencies. Also, Germany’s Financial Services company ETC Group was the first to launch a Bitcoin ETP on the German Stock Exchange. On the other hand, Germany’s top financial regulator BaFin has recognized digital currencies as financial instruments.

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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