Published: May 3rd, 2021
Proposed German legislation could drive as much as €350 billion (Approx. $425 billion) of institutional funding into the cryptocurrency sphere. The bill, which the German Bundestag has already approved during the week that ended on Saturday, April 24, would become law on July 1. However, the German Bundesrat, the federal council representing the 16 German states, also has to approve it.
A new law in Germany might open the door for billions of euros to pour into the cryptocurrency market. The bill, which is now awaiting approval from the German Bundesrat, the legislative body representing the 16 states of Germany, actively promotes the creation of investment products for virtual currencies.
If it is passed, it will open the door for institutional investors and high net worth individuals to channel up to €350 billion (Approx. $425 billion) in funding into the cryptocurrency sphere. According to the German daily financial newspaper, Boersen Zeitung, which broke with the report, the figures come from an analysis undertaken by Sven Hildebrandt, the managing director of Distributed Ledger Consulting (DLC).
The bill, which is expected to become effective on July 1, allows fund managers managing special funds, referred to as Spezialfonds in Germany, to put up to 20% of the asset portfolio under management in crypto assets.
If Germany diverts all assets described as Spezialfonds to the crypto industry, about $425 billion could be readily available. Such funds from business companies and high net worth individuals could easily spearhead the conventional acceptance of virtual currencies in Europe.
Sven said it is a huge step for fund allocation in Germany and the crypto community. It also is a win for the Euro bloc in its pursuit to keep up with advances in the FinTech arena. The country is the largest economy in Europe. Channelling such a huge amount to the cryptocurrency environment will create precedence and will inspire other countries to emulate, leading to the continued spread of virtual currencies in the region.
Germany continues to spearhead regulation and modulation of investment frameworks for crypto assets in the EU. However, Sven said that markets often view strict sets of rules negatively even though they almost always have positive effects. For serious market participants from abroad, such regulation makes Germany attractive.
The cryptocurrency enthusiast added that such a law would push local entities such as fund custodians, capital management companies, and asset managers to develop the required virtual currency skills and know-how fast or fall by the wayside.
Germany has shown increased enthusiasm and acceptance of crypto in recent months. The Deutsche Bank recently announced its intention to provide custody and brokerage to institutional clients. The bank joins the growing ranks of multinational financial institutions exploring the custody service space to offer high-touch products and services to hedge funds that invest in virtual currencies.
The prototype that the Deutsche Bank Digital Asset Custody team is working on aims to create a fully integrated custody platform that serves institutional clients and offers them seamless connectivity to their digital assets and the broader virtual currency ecosystem.
According to the World Economic Forum report that broke the announcement, German's biggest bank plans to set up a trading and token issuance platform that bridges the gap between traditional banking services and digital assets. The platform would allow clients to manage an array of digital assets and their fiat holdings in one easy-to-use interface.
With large multinational banks announcing their intentions to join the cryptocurrency environment daily, Deutsche Bank's announcement is not new. Only recently, the Bank of New York Mellon (BNY), the largest custodian bank in the world, joined the virtual currency fray.
BNY's move came after the Office of the Comptroller of the Currency in the U.S. offered regulatory clarity via the interpretation letter it released in 2020. In Germany, the situation is no different: Banks are queueing to get the special cryptocurrency custody licensing from the Federal Financial Supervisory Authority, the country's financial regulatory authority.
Deutsche Bank said it aims to keep its clients' assets safe and accessible by offering institutional-class hot and cold storage solutions that come with insurance-grade protection. However, the bank fell short of mentioning the crypto assets it plans to offer alongside the custodial solution.
The bank said the solution would be unrolled in stages. Eventually, the plan will enable clients to buy and sell virtual currencies through a partnership with prime brokers.
Meanwhile, Germany's central bank, Deutsche Bundesbank, has tested a settlement interface based on blockchain. The bank plans to use the platform to settle electronic securities.
According to Jens Weidmann, the bank's president, the test showed that new technologies and conventional payment systems could settle securities using central bank money, but not necessarily while relying on central bank digital currency (CBDC).
The test was done in conjunction with the Deutsche Börse, the country's stock exchange, and the Germany Finance Energy. To demonstrate the solution's capability, Deutsche Bundesbank created a 10-year government bond, which it issued using distributed ledger technology. The subsequent primary and secondary market trading of the bond was settled using the same system.
Deutsche Bundesbank's test, which involved several marketplace participants such as Barclays, Citibank, Commerzbank Aktiengesellschaft, DZ Bank AG, The Goldman Sachs Group, Inc., and Société Générale S.A. is getting good reception.
According to the bank, the solution counters the blockchain-based settlement process that uses CBDCs. The latter can be used to tokenize money and assets. The bank adds that it can be replicated, deployed, and scaled in a considerably shorter time than the duration required to issue a CBDC successfully.
The crypto market has welcomed Deutsche Bank's newfound enthusiasm for blockchain and cryptocurrencies. Unlike its counterparts in the Netherlands, France, and most other countries in the Eurozone, the German central bank has been lukewarm about the digital euro's launch, claiming it would weaken the banking system and punish savers.