Germany allows institutional funds to invest up to 20% holdings in crypto starting next week

On Monday, Germany will implement a law allowing institutional funds to hold up to 20 percent in crypto.
Most institutional investors will likely only experiment with crypto, driven by their conservative nature and crypto assets’ volatility says, financial experts.

Germany has approved new legislation allowing over 4,000 institutional investment funds to invest billions in crypto assets. As of Monday, a law will let the so-called Spezialfonds (special funds) with fixed investment rules, access digital assets. The firms will be able to allocate as much as 20 percent of their portfolios in crypto assets.

Notably, Spezialfonds are solely accessible via institutional investors such as insurers and pension companies. They control roughly €1.8 trillion ($2.1 trillion) worth of assets under management, none of which are in crypto. Therefore, theoretically, should they invest up to their legal limit, then up to $422 billion would enter the crypto market.

In the past year, digital currencies adoption has increased extensively among institutional investors. Crypto assets have continued to increase in valuation with a small number of well-to-do investors dominating holdings. As the assets gain more recognition, more such investors are looking to gain exposure.

Germany adoption of cryptocurrencies

Germany’s federal parliament, the Bundestag, passed the law and it is to be promptly declared by the country’s Federal Council. One parliamentarian, Frank Schäffler, said the new law will propagate acceptance of the new assets. That said, other authorities remain skeptical in letting crypto assets become part of their economy. As for Germany, the new law marks the dawn of a major milestone in the mainstream adoption of crypto assets.

Moreover, the law’s implementation follows huge investments made by prominent figures in the financial industry. These include tycoon Mike Novogratz, the CEO of crypto-focused Galaxy Investment Partners, and renowned hedge fund manager Alan Howard.

Most crypto experts in Germany are confident that this move places the country in the right direction. Admittedly, the development will also maintain Europe’s largest economy as a leading financial investment hub.

The outlook for financial institutions

“Most funds will initially stay well below the 20% mark,” said Tim Kreutzmann, an expert on crypto-assets at BVI, Germany’s fund industry body.

On 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.

Kamil Kaczmarski, a financial services adviser from Oliver Wyman LLC, noted that crypto volatility is uninviting. This is especially true for German investors, who traditionally, are very conservative. Kaczmarski expects most funds will conduct small experiments with digital assets, without approaching the threshold for at least five years.

Notably, a spokeswoman from Deutsche Bank AG’s asset manager DWS group said that they are currently monitoring events. For the moment though, she said, they are not planning to set aside funds for acquiring crypto. Another spokesman from DekaBank, one of Germany’s prominent asset managers, expressed similar sentiments. For a while, DekaBank has been considering investing in digital assets but is yet to make an official decision on the same.

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