- In Germany, institutional funds would be able to invest a percentage of their portfolio in crypto-assets
- On August 2, 2021, the Fund Allocation Act will take effect
- JPMorgan has also stated that it plans to develop a digital foreign currency funding solution for its high-net-worth clients
For the first time, Germany intends to allow select institutional institutions to invest billions of euros in crypto assets. A new regulation that goes into effect on Monday will allow fixed-income funds to invest up to 20% of their assets in Bitcoin and other cryptocurrencies. Only institutional investors, including pension funds and insurers, have access to the funds, which presently manage approximately 1.8 trillion euros ($2.1 trillion).
Crypto assets, whose prices have fluctuated and whose markets are dominated by a tiny number of investors, have been met with skepticism by lawmakers throughout the world. The move signals a shift in the asset class’s popularity, following investments by some of the industry’s biggest names, including Mike Novogratz and Alan Howard.
Institutional funds are expected to invest up to a fifth of their assets in cryptocurrency
The Fund Allocation Act, according to Bloomberg on Friday (July 30, 2021), will take effect on August 2, 2021. Spezialfonds (special funds) can invest up to 20% of their portfolios in bitcoin and other cryptocurrencies, according to the law.
Spezialfonds are German investment vehicles confined to institutional investors such as pension funds and insurance companies, and they handle 1.8 trillion euros ($2.1 trillion) in assets. There would be a €360 billion ($428 billion) inflow into bitcoin if these Spezialfonds decided to allocate all of the 20%.
While this is a positive move for the crypto market, other analysts say that German investors are still wary of investing in crypto due to its volatility nature. Some of the funds may not put up to 20% of their portfolio in bitcoin and crypto for at least five years, according to Kamil Kaczmarski, financial services consultant at consultancy firm Oliver Wyman LLC.
Tim Kreutzmann, a cryptocurrency expert at the German Investment Fund Association (BVI), has stated: Most funds will initially stay well below the 20% barrier. Institutional investors, such as insurers, are subject to stringent regulatory constraints for their investing plans. They must, on the other hand, wish to invest in cryptocurrency.
Financial institutions in Germany have also reacted to the situation. There are no immediate plans to create funds that acquire bitcoin, according to a representative for DWS Group, the asset manager of the international investment bank Deutsche Bank. DekaBank, a major asset management, also stated that it was still exploring investing in cryptocurrency.
Institutional Interest Is Growing
Institutional interest in crypto appears to be more than a passing fad, with banks and financial institutions already assisting in the onboarding of additional big-money players into the area. Zeno Staub, CEO of Swiss banking behemoth Vontobel, disclosed to BTCManager that the firm’s institutional clients were demonstrating a strong appetite for bitcoin exposure. JPMorgan Chase & Co., a Wall Street bank, has even stated its intention to develop a virtual currency investment product for its high-net-worth clients.
According to Kamil Kaczmarski, a financial services adviser at Oliver Wyman LLC, a management consulting business, the assets’ volatility may not be appealing to such investors in Germany, who are usually conservative. He anticipates funds to experiment with crypto currencies at a modest level, with the majority of them taking at least five years to get close to the barrier.