A law comes into force today in Germany that could bring new capital to crypto markets.
In fact, today, July 1, 2021, a German law comes into force that allows “special funds” (Spezialfonds) to allocate up to 20% of their portfolio in cryptocurrencies.
In total, this law could unlock around €350 billion, or around $415 billion, of capital from these funds that could theoretically be used to buy cryptocurrencies.
Obviously, this figure only really corresponds to the cap, but since the entire crypto market is worth about $1.4 trillion today, this cap corresponds to 29% of the entire value of this market.
It is very difficult to imagine how much of that $415 billion will actually flow into the crypto markets, just as it is impossible to know when it will happen, if it will happen, and which cryptocurrencies the Spezialfonds will eventually focus on, but it is unlikely that the enactment of this law will have no consequences.
It has to be said that the German market has been moving towards cryptocurrencies for a while now, as evidenced by two recent news stories about Germany and crypto markets.
Germany’s new turn towards crypto
A few days ago, Coinbase became the first crypto company to obtain the appropriate license in the country, which could mean that the exchange could be ready to provide cryptocurrency trading and custody services to, for example, the country’s banks, which have already been explicitly authorized to sell bitcoin for some time.
Moreover, it was announced on Tuesday that the group that owns and operates the country’s largest and most important exchange, the Frankfurt exchange, has acquired control of a Swiss company that provides crypto services, including trading and custody. It is therefore possible that cryptocurrencies may even land on the Frankfurt stock exchange in the future.
In light of this, it seems unlikely that the law that came into force today will not give Spezialfonds the green light to invest in cryptocurrencies, although it is completely unpredictable how much capital these funds will actually bring into the crypto market.
There is also a possibility that the new German legislation could foster a wider acceptance of institutional investment in cryptocurrencies across Europe, given that Germany is the most powerful economy in the Eurozone.
Indeed, Spezialfonds are the main institutional investment vehicle in Germany, and should any large or significant allocation of capital to the crypto market take place, this could also trigger a kind of cascade effect on other similar investors in other European countries.
On the other hand, it was probably large investors, including institutional investors, who enabled the crypto market to recover in 2020 after two and a half years of a real bear market, so they would certainly have the strength to make a difference in 2021 as well.