July 01, 2021 will be the deadline for a new law that will give around 4,000 special funds more freedom and allow investments in cryptocurrencies.This is good news for the recently booming sector of crypto debit card providers and all other new crypto service providers on the market.
The draft law has already passed the Bundestag and now only needs the approval of the Bundesrat. According to the new law, funds managed for institutional investors can invest a good 20 percent of their assets in crypto assets. This clears the way for institutional crypto funds in Germany.
Draft law on crypto funds
The new law allows German crypto funds – source German Bundestag. The gates for a huge wave of fresh capital for the crypto market have been opened by the new law. Analysts assume that the interest from institutional investors will be enormous. Not only the approximately 4,000 existing special funds will benefit, but also new ones that are usually launched by institutions such as pension funds, insurance companies and banks.
The decision of the Bundestag is an important signal in the direction of the crypto market and strengthens Germany’s position as a financial investment location. The establishment of German crypto funds has long been a topic of discussion in the scene, especially because other countries such as Canada have long been ahead of the game. Additionally, the inclusion of crypto assets in special funds “[…] is an important step for their acceptance,” as German Member of Parliament Frank Schäffler aptly commented on the legislative change in an interview.
In a nutshell: What are special funds?
Special funds are aimed exclusively at institutional investors and are not open to the general public. The counterpart are the so-called mutual funds, in which private investors can also invest. Special funds are freer in their investment strategy and can, under certain circumstances, agree regulations with investors that deviate from the law. This enables higher-risk but also higher-yield investments. In general, special funds, just like mutual funds, are subject to the German Capital Investment Code, or KAGB, and are supervised by the German Federal Financial Supervisory Authority, or BaFin.
Crypto funds: up to 350 billion euros in potential capital for the crypto market
Currently, around 1.2 trillion euros are invested in special funds. Current law does not allow investments in the highly volatile crypto market, which is why none of the capital in the special funds goes into bitcoin and the like. If those, who are not tied to physical investment products, special funds decide to invest only one percent of their fund allocation in cryptocurrencies, the impact on the crypto market would be: “enormous!” says Distributed Ledger Consulting CEO Sven Hildebrandt in an interview. Together with the national association of asset managers, the BVI, Hildebrandt was instrumental in getting the law change off the ground.
In purely theoretical terms, up to 350 billion euros could flow into crypto assets as a result of the entry of special funds. The already bullish crypto market is only likely to gain momentum with such outlooks.
It’s not going to happen overnight, but we’re talking about the biggest investment vehicle we have in Germany – literally all the money is in there.
The new law is based on efforts to legitimize crypto assets more and more in Germany. In early 2020, there was already a change in the law that allows banks to buy, sell and store cryptocurrencies like Bitcoin.
Conclusion: German crypto funds are coming, predicting a bullish summer
The new law greatly strengthens the position of cryptocurrencies among the many investment options. The inclusion of crypto assets in special funds also signals confidence in the crypto market. Confidence that might just motivate the more security-minded German investors to look into crypto.
The year 2021 continues bullish for the crypto market and the positive news from Germany should also provide a further boost. July will show just how much demand there really is from institutional investors in the special funds.