German Institutional Funds Allowed up to 20% in Crypto Holdings

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In Brief
  • Certain institutional funds with fixed investment rules in Germany can now put up to 20% of their holdings in cryptocurrencies.

  • Experts believe most will approach conservatively and not approach the threshold for several years.

  • Despite allowing cryptocurrencies, German are traditionally very conservative financially.

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Certain institutional funds with fixed investment rules in Germany can now put up to 20% of their holdings in cryptocurrencies.

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These so-called Spezialfonds will now be able to do this according to a law taking effect on Monday. The funds can only be accessed by institutional investors, such as pension companies and insurers. They currently manage about 1.8 trillion euros ($2.1 trillion).

German financial conservatism

Crypto assets expert at Germany’s fund industry body BVI Tim Kreutzmann believes that most funds will stay well below 20%. “On the one hand, institutional investors such as insurers have strict regulatory requirements for their investment strategies. And on the other hand, they must also want to invest in crypto.”

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This tentative approach is also expected by financial services adviser at management consultancy Oliver Wyman LLC, Kamil Kaczmarski. He believes funds will experiment with cryptocurrencies at lower levels, without approaching the 20% threshold for at least 5 years. 

Kaczmarski also notes that Germans could be hesitant due to the wild price swings of cryptocurrencies. Germans have been infamously conservative around financial matters since hyperinflation struck their ailing postwar economy in 1923. In German, the word for debt is the same word as blame or guilt.

BaFin at work

Yet, despite this inherent skepticism, Germany’s financial regulator BaFin did allow certain institutional funds to start holding crypto earlier this month. In the past, the financial watchdog stressed its concern over the risky and volatile nature of the crypto market. However, this new development intends to show that the regulator nonetheless wants to encourage the future growth of emerging financial technology. 

However, Germany’s financial watchdog also recently played a role in the recent struggles of Binance. After launching stock tokens in April, BaFin was the first regulatory agency to take issue with them. To the regulators, these stock tokens seemed like securities, and so required a prospectus. This initial inquiry has now ultimately led to Binance withdrawing its stock token offerings.

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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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