Germany is about to open institutional cryptocurrency funds!

In Germany, new legislation will force managers of the most popular institutional investment funds (Spezialfonds) to allocate 20% of their funds to crypto assets, with the new regulations set to take effect on July 1.

The measure has been hailed as a major boost to Germany’s status as a financial investment hub, with experts believing it will foster the entire cryptocurrency industry by further legitimizing the asset class.

German MP Frank Schäffler said the addition of crypto assets to the Spezialfonds is an important step towards increasing crypto adoption.

The law, which was passed by Germany's Bundestag last Thursday, applies both to existing Spezialfonds and to new ones set up by institutional investors such as financial institutions, insurance companies and pension funds.

Sven Hildebrandt, CEO of Germany-based Distributed Ledger Consulting (DLC), said there are currently about 4,000 investment funds that will be eligible to invest in Bitcoin and other crypto assets.

Germany’s bold move follows the introduction of laws in early 2020 that allow banks to sell and store cryptocurrencies.

In 2020, financial services company ETC Group became the first company to launch a Bitcoin ETP on a German stock exchange after German financial regulator BaFin recognized cryptocurrencies as financial instruments.

Since then, bitcoin exchange-traded funds (ETPs) have proliferated on German exchanges, with crypto asset manager Iconic Funds set to list its bitcoin ETP this week.

Leading fund manager State Street will serve as administrator for the upcoming ETP, a first for the international bank. Fidelity Digital Assets and Coinbase will serve as custodians.

“Demand is growing rapidly from all types of investors who want access to crypto assets,” said Michael Geister, head of crypto ETPs at Iconic. He noted that the European ETP market has grown to over $5 billion in assets under management in a “short period of time.”

Hildebrandt believes Spezialfonds could be even bigger and says institutional interest in it is “exploding.” He explains that Germany is a country that is very keen on complying with regulations.

Hildebrandt said that if Spezialfonds chooses to allocate 1% of its funds in cryptocurrencies when the new legislation comes into effect on July 1, the impact on the crypto industry will be huge.