When Germany introduced the Fund Locations Act in April, Bitcoin investors and enthusiasts were thrilled. The bill brought a fresh start in Bitcoin investing with the hope of a bright future for the virtual currency market. The law was passed by the Bundestag on April 22nd and entered into force on July 1st.
What does the bill now include? You are probably wondering; What impact will it have on the bitcoin market and its price? In this article we will answer these and other questions.
Which act includes
In essence, the new law allows domestic special funds, up to 20% of their portfolio in crypto assets. Special funds are open and regulated funds that are restricted to institutional investors such as corporations, insurance companies and financial institutions. That means they are not open to the general public. There are no comparable special funds in the USA. However, the Funds are compared to the Luxembourg Qualified Investor Fund and the Irish Qualified Investor Fund.
The legislation includes approximately 4,000 existing mutual funds with holdings of approximately 1.88 trillion euros ($ 2.23 trillion). The 20% approved for crypto investing is roughly $ 446 billion. This corresponds to about two-thirds of Bitcoin’s current total market capitalization. The law drawn up by the Ministry of Economic Affairs and Energy and the Ministry of Finance signals Germany’s interest in crypto regulations. Some websites that offer long-term crypto predictions have already considered this news and even went so far as to predict that Bitcoin will hit a new ATH by the end of this year.
A new morning for institutional bitcoin investing
The alternative investment funds were initially not allowed to invest in volatile markets. In addition to new laws, Germany has passed the Electronic Securities Act (eWpG). This law will open the space for fintech and digital assets and enable digital stocks. Given the right legal conditions, these regulations will allow institutional investors to diversify their portfolios in the volatile and liquid Bitcoin market.
The effect of the new regulation is not yet certain. On the one hand, it could open a large inflow of capital into the crypto space. This could boost Bitcoin demand and thus the rise in prices. On the other hand, however, skeptics see the bill as a regulatory foundation in the crypto industry.
Accordingly Decrypt, Sven Hilderbrandt, CEO of Distributed Ledger Consulting, describes the change as a massive step forward. He believes that special fund investment vehicles will fuel growth in the cryptocurrency market. In fact, Hilderbrandt was at the forefront of lobbying for Bitcoin regulations alongside the Asset Management Association – BVI.
The funds’ entry into the market provides institutional investors with tools to get a piece of the digital assets without necessarily buying real cryptocurrencies or dealing with digital wallets or crypto exchanges. The investment vehicle increases flexibility and reduces diversification and liquidity constraints. In addition, the funds are less restrictive on leverage and borrowing. Adopting robust regulations will protect the industry and build investor confidence.
The immediate effect on Bitcoin
If the funds invest 20% of their holdings in the crypto space, about 350 billion euros ($ 414 billion) could flow into the cryptocurrency market. Even if firms may not invest the maximum amount right away, the initial investment will still be in the billions.
For example, if the funds decide to start the new venture by investing one percent of the fund’s assets in digital currencies, the impact on the market would be massive. To put this in perspective, the Bitcoin market cap is roughly $ 593 billion by coin market cap. Ideally, $ 400 billion could enter the bitcoin market. This is a huge chunk of the total Bitcoin value and would rock the entire market.
Will this promote institutional acceptance in Germany?
According to the head of the Federal Association for Alternative Investments (BAI), Frank Dornseifer, the law will make a major contribution to the digitization of the German capital market. In fact, he describes the move as “pragmatic”.
In addition to the new law, Germany has passed many regulations that, if implemented, will boost the growth of crypto adoption. For example, the German financial supervisory authority (BaFin) has offered a CoinBase license to provide a crypto custody service in the country. In addition, BaFin SwarmMarket DeFi startup a license to operate your stock exchange and crypto business in Germany.
At the beginning of 2020, Germany passed a law that allows banks to buy and sell crypto currencies. In fact, the financial regulator BaFin has recognized cryptocurrencies as financial instruments. As a result, the first Bitcoin Exchange Traded Fund ETP was listed by the ETC Group on the German stock exchange. In addition, the Deutsche Börse Group, a stock exchange operator, acquired Crypto Finance AG.
These developments have paved the way for other crypto-based investments. Bitcoin ETP has increased massively on the stock exchanges. According to Iconic Holding, head of Crypto ETPs, the demand for crypto assets is huge, with assets under management reaching $ 4 billion in a short period of time. With new investments in digital assets, the special fund will grow massively.
Undoubtedly something is boiling the German crypto industry. These progressive regulations will go a long way towards improving the acceptance of cryptocurrencies. For example, they promote partnerships between crypto custody providers and German banks.
The laws will give investors more freedom to venture into crypto investments. However, we cannot overlook the fact that Germany is gradually restricting the industry with mandatory requirements such as Knowing Your Customer (KYC) and other similar requirements.
Create incentives for other countries in the European Union to follow suit
The news that special funds can invest in Bitcoin was received with great enthusiasm. For example, US Wealthy Colony founder Joseph Hagan said the law is a massive development as institutions and corporate investors are historically disadvantaged when investing in crypto coins.
Other European countries are likely to follow suit and allow institutional investment funds to venture into the cryptocurrency with set regulations. The move would result in a gigantic amount of money pouring into the cryptocurrency market. As a result, the price of Bitcoin and other cryptocurrencies would rise to new highs. According to the Deutsche Bank Bitcoin investments cannot be overlooked. In fact, fearing future USD inflation, the bank has started making institutional investments in crypto assets.
The new law will boost the influx of German capital into the cryptocurrency industry. In addition, it is expected to spark a wave of regulation of crypto trading across Europe and interest in Bitcoin adoption. With these massive ones, we could look at another massive bull run for cryptocurrencies.