Germany will allow funds to enter crypto assets in July. Will 35 billion euros flow into the market?

On June 29, according to foreign media Mondaq, Germany's new "Fund Positioning Law" will come into effect on July 1, allowing about 4,000 existing institutional investment funds to invest in cryptocurrency assets. At that time, Germany's special funds (Spezialfonds) will be allowed to invest 20% of their portfolios in crypto assets such as Bitcoin.

Huobi Research Institute believes that market demand may be one of the factors that drove Germany to give the green light to the crypto asset market. Since the beginning of this year, with the flood of US dollars, global economic inflation leading to currency depreciation seems to be an inevitable expectation. In June this year, Deutsche Bank, Germany's largest bank, issued a warning of severe inflation in the United States, believing that the economy is similar to the 1940s and 1970s. Deutsche Bank said that as central banks lose control, inflation may plunge the global economy into recession, and cryptocurrency investors are paying close attention to inflation, and they see Bitcoin as a tool to hedge against the depreciation of the US dollar.

In fact, before Germany gave the green light to the crypto asset market, banks were allowed to sell and store cryptocurrencies in early 2020. In 2020, after the German financial regulator BaFin recognized that cryptocurrencies are also financial instruments, financial services provider ETC Group became the first company to launch a Bitcoin ETP on the German Stock Exchange.

In addition, Germany has also shown a "friendly" side in its definition of crypto assets. On March 2 this year, the German Federal Financial Supervisory Authority (BaFin) issued a guideline on the custody business of Bitcoin and other cryptocurrencies. According to the terms of the opinion, BaFin defines cryptocurrencies such as Bitcoin as "Crypto Values" and regards them as a new financial instrument.

Huobi Research Institute believes that with the entry into force of Germany's new "Fund Positioning Law", this measure will support the development of the entire crypto asset industry by legalizing more types of asset investments, and may be able to enhance Germany's position in the financial investment market. According to statistics from the German DLC company, there are currently about 4,000 existing investment funds in Germany that will be eligible to invest in Bitcoin and other crypto assets, which is undoubtedly a huge change for the global crypto market.

However, the market should remain rational about this. Although Spezialfonds brings together almost all the current investment funds in Germany, if all eligible funds invest 20% of their funds in Bitcoin, it will account for one-third of the current market value of crypto assets. This situation is relatively extreme and is unlikely to occur.

On the other hand, the entry of traditional capital into the cryptocurrency market is an inevitable trend of the times. On March 4, 2021, Huobi Technology announced that its wholly-owned asset management subsidiary Huobi Asset Management has obtained the approval of the Hong Kong Securities and Futures Commission to allow Huobi Asset Management to issue a fund with 100% virtual assets in accordance with the Standard Terms and Conditions for Licensed Corporations Managing Investment Portfolios Investing in Virtual Assets.

Huobi Research Institute believes that although the channels for traditional global capital to enter the cryptocurrency market are still limited, with the continuous development of cryptocurrency funds, traditional capital is expected to have more compliant channels to enter the market. Judging from the market changes in the past two years, Western countries have shown a certain trend in compliance supervision of crypto assets.