German law allows 4,000 institutional funds to invest in Bitcoin and other cryptos. The measure can cause an inflow of $415 billion to the crypto market.
Legislation enforced July 1 could cause as much as $415 billion to flow into the cryptocurrency market. Germany's 'Fund Location Act' came into force, a regulation that grants authorization to special national funds, the "Spezialfonds," to invest up to 20% of the funds they manage in digital assets such as Bitcoin. In April this year, the law was introduced and was approved by Germany's Bundesrat shortly after that.
The new law in Germany allows Spezialfonds companies to invest capital in cryptocurrencies. Experts in Germany hailed the measures as a push to strengthen Germany as a financial investment hub. There is also speculation that this regulation will favor the local cryptocurrency industry. While further legitimizing the new asset class.
"The addition of cryptocurrencies in Spezialfonds is an important step towards their acceptance," German parliamentarian Frank Schäffler had commented on the matter to Decrypt media in April when the Bundestag passed the law.
$415 billion could flow into the crypto market
It is worth noting that Spezialfonds are the dominant institutional investment vehicle in Germany. A sizeable allocation of this market towards cryptocurrencies could have profound implications across Europe, given that this is the country with the largest economy in the entire Eurozone.
According to the CEO of Distributed Ledger Consulting, Sven Hildebrandt, if each Spezialfond opted to allocate the complete 20% in cryptocurrencies, it would amount to €350 billion ($415 billion), based on the total managed assets of such funds in Germany. Hildebrandt had highlighted this to the Boersen Zeitung business newspaper in April.
His calculations estimate that investors have committed around 1.87 trillion euros (about $2.2 trillion) in approximately 4,000 special funds. In conversations with Decrypt media, he had called the figure "damn huge,"; especially considering that the total market capitalization of Bitcoin is $642 billion - a number that has dropped since Hildebrandt's statements in April.
Germany's investment funds at the forefront
German Spezialfonds will, for the first time, be able to invest in cryptocurrencies. One of them is Bitcoin, a move that could broadly favor the market and the crypto ecosystem in general, especially when the cryptocurrency market has lost nearly 50% of its valuation since the announcement of the law.
Although they do not have a U.S. equivalent, some have compared Spezialfonds to Special Investment Funds (SIFs) in Luxembourg and Qualified Investor Funds (QIFs) in Ireland. These investment vehicles are attractive to institutions because they allow flexibility and are much less restrictive on liquidity requirements, diversification, borrowing restrictions, and leverage.
At the same time, a sound regulatory framework provides security for investors. Now, funds have become the ultimate financial tool at the disposal of German institutional investors, allowing them to invest in crypto without worrying about their storage.
Notably, the new law also applies to newly established financial institutions, insurance companies, and pension funds; German lawmakers call for the government to extend the regulations to include public funds.