Updated 13 Jul, 2021

German Funds Can Now Invest in Bitcoin and Cryptocurrencies

Key Takeaways:

  • German authorities allow institutional investors to allocate up to one-fifth of their assets to crypto
  • The new law is a massive step forward for Bitcoin and cryptocurrencies

Germany’s Bundestag Approves the Fund Allocation Act

Institutional investors in Germany have been granted the ability to invest in the nascent cryptocurrency market. The new rules first proposed in April by the Bundestag, a house in the German parliament. Consequently, they have now become a law.

Indeed, under the new law, called the Fund Allocation Act, all specialized investment funds, or Spezialfonds, can now allocate up to a fifth of their assets to cryptocurrencies. These funds are only open to institutional investors and the worth of the total assets held by them exceeded €2tn at the end of the first quarter of this year.

These funds can now legally transfer as much as €400bn or about 65% of the total market capitalization of Bitcoin. However, money managers are in no rush to plough substantial amounts of money into the highly volatile asset class. Instead, they are expected to take a cautious approach as they assess the risks of the booming crypto market.

The new law, which was enacted at the start of this month, is a large step for Germany toward crypto.  Accordingly, the country places itself in a leading position among European countries that still struggle to accommodate cryptocurrencies in traditional finance.

German Lawmakers Increasingly Curious About Cryptocurrencies

Germany’s financial regulator BaFin has raised concerns over the “highly risky and speculative” nature of digital currencies. Nonetheless, German lawmakers are increasingly open and willing to participate in allowing new technologies to shape the next generation of financial services.

The initiative to allow institutional investors to participate in the fast-emerging cryptocurrency market is part of a broader effort. In fact, German authorities are launching digitally-centered projects in the financial sector. Since last month, German companies can issue debt securities using blockchain. Which is the same distributed ledger that powers tokens such as Bitcoin and Ether.

In addition to Germany’s accommodative stance toward cryptocurrencies, the German multinational investment bank Deutsche Bank has said that Bitcoin has become “too important to ignore”. The bank has predicted that Bitcoin’s price is bound to continue to rise. This increase would come as a result of more money managers and companies entering the market.