Germany’s $ 415 billion law promises crypto down the line

[ad_1]

In July, Germany took a major step forward in the crypto space by passing a law that allows so-called spezialfonds (special funds) to allocate up to 20% of their capital in crypto assets. Given that Germany is one of the largest economies in the world, and its capital, Berlin, has been named the European cryptocurrency capital by industry leaders, the news would appear to be significant.

If the spezialfonds, which include insurance companies and banks, allocated the 20% of the allowed allocation, that would be a remarkable $ 415 billion, a big slice of the pie, as Clemens Schuerhoff, chairman of a financial consultancy firm Kommalpha, describes it.

The change in law is a big victory for crypto and blockchain proponents in Europe and around the world, as the introduction of such a large pool of institutional money into the sector will be profound, Philipp Pieper, co- founder of Swarm Markets, a German decentralized finance (DeFi), writes in an email.

But this prospect seems far away. While the new legislation could lead to a possible market boom, for now, most fundraisers continue to learn about the industry rather than seriously considering it as an investment.

There are investors who will do investment trials, but that’s it. I’m pretty sure there won’t be any significant investment or allocation for the foreseeable future, Schuerhoff said.

The Spezialfonds are managers of private and institutional investment funds such as banks, insurance companies and companies. These are two very influential but notoriously traditional and conservative characteristics that generally don’t fit well with the modern, high-risk crypto industry.

We’re coming from a very traditional point of view and not only is bitcoin’s volatility a hindrance, Schuerhoff said.

The new law, which was approved by parliament in April and went into effect on July 1, was touted as the first step for Germany to become a leader in crypto after years in which many companies have turned to are moved to the so-called Crypto Valley in Switzerland. and Liechtenstein, which are known for their legal stability and favorable tax laws.

Germany wants to be a leader but that’s not happening, says Fabian Pohl, co-founder of Pacta, a Berlin-based blockchain startup. Other countries are more advanced.

Lack of clarity

Industry players complain about the lack of clear and rapid responses from the German government regarding the legality of new projects.

There is a very slow watchdog response time [the BaFin], the German equivalent of the U.S. Securities and Exchange Commission, says Andr Eggert, General Counsel of Neufund, a Berlin-based blockchain startup headquartered in Liechtenstein. It takes a long time to set up a project and start it up because the lead time is very long.

Neufund is part of a group of companies incorporated in both Liechtenstein and Germany. Co-founder and CEO Zoe Adamovicz says that while she doesn’t think Liechtenstein and Switzerland offer more regulatory simplicity, companies need to structure themselves in different jurisdictions to optimize their operations.

Due to the lack of regulation, many startups have left Germany. Now that the regulations are getting a bit clearer, most good startups are already outside of Germany, says Professor Ingo Fiedler, co-founder of the non-profit Blockchain Research Lab in Hamburg.

The absence of new laws means that the old laws have been applied to this new industry. Non-fungible tokens (NFTs), for example, are not specifically covered by any existing laws and, therefore, the government enforces already existing laws that have been passed for other cases on these types of assets that reside in one. ineffective regulation.

You’re applying the law to something it wasn’t made for and that creates a lot of legal uncertainty, Eggert said.

Another fundamental obstacle is the fact that the new legislation does not clearly define what is meant by digital assets. For this reason, fund managers will instead invest in established assets such as bitcoin or ether to ensure their investment is covered by law, Eggert said.

It doesn’t help startups. Their founders believe the legislation could have a positive and indirect effect on startups in the long run, but they don’t expect to receive special fund investments anytime soon.

I think we were going to see an indirect effect [on the startup industry] because knowing that at some point these larger funds will commit and be able to invest in coins at a later stage, it makes a lot of sense that the start-up funds support these startups today and take them to a level where they can issue coins and have liquidity in the market, Eggert said.

There is certainly a possibility for spezialfonds with a specific area of ​​interest, such as digital transformation or digitization, or those specifically interested in crypto and blockchain to exhaust the 20% investment opportunity. Others, for example those focused on real estate, might not even touch crypto or blockchain at all, he said.

In general, the demand for investments from institutional investors in the space appears to be limited. No spezialfond will take a double-digit amount and opt for bitcoin or large cryptocurrencies, especially due to the high volatility, according to Schuerhoff.

Some say there is already action in the market, others say there is not, but the bottom line is that there is no data available at this point. A recent TripleA poll found that 2.6% of Germans currently hold cryptocurrencies, with 48% of owners using it to make purchases.

While flashy headlines highlight the potential allocation of $ 415 billion in investment, the new legislation, which also introduced new general guidelines for funds in the country, has a much bigger focus. It exposes Germany to the industry and begins a process of familiarizing itself with cryptocurrency and blockchain technologies so that the country can once again become a leader in the space.

The direct effect on startups is limited, but the indirect effect is substantial, Eggert said.

[ad_2]