Germany's crypto policy takes another step forward from allowing banks to sell to institutional investment funds to hold

According to Decrypt, Germany has passed a new law that will allow about 4,000 existing institutional investment funds to qualify for investment in cryptocurrency assets. The new legislation will take effect on July 1, and managers of institutional investment funds (so-called Spezialfonds) will be able to allocate 20% of their funds to crypto assets.

Sven Hildebrandt, CEO of German Distributed Ledger Consulting (DLC), believes that theoretically, Spezialfonds alone could have as much as 350 billion euros ($422 billion) in funds that could enter the crypto market. (Currently, Bitcoin’s market value is about $1 trillion.)

The law, which was passed by the German Bundestag last Thursday, applies to both existing Spezialfonds and new ones set up by institutional investors such as financial institutions, insurance companies and pension funds. The measure is hailed as another huge boost to Germany's status as a financial investment hub, and experts believe it will further legitimize this asset class, thereby fostering the entire cryptocurrency industry.

Germany’s bold move comes after it enacted a law in early 2020 allowing banks to sell and store cryptocurrencies.

On November 29, 2019, the German Bundestag passed a law allowing banks to sell and store cryptocurrencies. The law came into effect on January 1, 2020. The law also requires cryptocurrency exchanges and custody service providers operating in Germany to apply for a license from the government. Analysts believe that increased regulation will attract more institutional investors to invest in Germany.

In addition, on March 2, 2020, the German financial regulator issued guidelines for classifying cryptocurrencies as financial instruments. The German Federal Financial Supervisory Authority (BaFin) describes cryptocurrencies as: digital assets that have not been issued by any central bank or guaranteed by a public institution, and are not necessarily linked to a legal currency, but have the legal status of currency or money, but can be accepted as a medium of exchange for natural persons or legal persons, and can be transmitted, stored and traded electronically.

The move further expands the definition of financial instruments to cover all types of digital assets, whereas the previous version only covered security tokens.

Financial services company ETC Group launched its first Bitcoin ETP (Bitcoin Exchange Traded Product) on the German Stock Exchange in 2020 after Germany's financial regulator BaFin recognized cryptocurrencies as financial instruments. This week, crypto asset management company Iconic Funds will list its Bitcoin ETP. State Street will serve as its manager, and Fidelity Digital Assets and Coinbase will be its custodians.