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    Germany Approves Crypto Investment Fund Act

    A new law in Germany now allows the almost 4,000 institutional funds accounting for about €2 trillion in assets under management to invest 20% of their portfolios in bitcoin and other cryptocurrencies.

    The German Bundesrat has approved a new piece of legislation – The Fund Location Act – which entered into force on 1 July and aims to regulate emerging asset classes for Germany’s finance industry, including crypto assets such as Bitcoin (BTC).

    The new law was first proposed and approved in the Bundestag (the lower house in Germany’s parliament system) back in April, and with the recent approval in the Bundesrat the bill passed into law yesterday.

    The specifics of the bill grant spezialfonds (special wealth management funds) the legal ability to allocate as much as 20% of their portfolio into crypto assets.   The new law also allows the management company of a special alternative investment fund (AIF) to invest in holdings of unlisted companies. According to GlobalBlock, a UK-based digital asset broker, the FoStoG could lead to an increase in Spezialfonds’ asset allocation to cryptocurrency.

    In an ideal scenario, Spezialfonds’ 20% allocation to cryptocurrency equates to investments totaling $415bn (€350bn), based on the total assets under management of such funds in Germany, GloabalBlock calculated. Last year the Ministry of Finance proposed a draft law to further support investment fund activity in the country. The parliament, Bundestag, passed the law in April, followed by the Bundesrat, the constitutional body representing the federal states, in May.

    The new regulations aim to facilitate not only the activities of funds in Germany but also make easier the equity transfer from a company to employees. According to section 19a of the new law, the transfer of assets in a company from the employer to its employees in a calendar year is tax-free. This measure is intended to lift capital provision for start-ups.

    Impact Investmentfonds may be set up as open domestic special AIFs or as closed domestic special AIFs. Management companies of AIFs, which run an Impact Investmentfonds, must comply with the Operating Principle of Impact Management set by the International Finance Corporation, a member of the World Bank Group, according to the law.

    The new law could facilitate a massive influx of German financial capital into the crypto industry, with some analysts speculating this latest move will open the door to $415B in potential investment in cryptocurrencies.  Increased interest in cryptocurrencies in Germany and Europe has led to a flurry of regulatory activity this week, with the passage of this bill following Monday’s decision by BaFin (German financial watchdog) to license the CoinBase exchange for operations in the country.

    Deutsche Bank began institutional adoption of cryptocurrency assets this year, with their economists predicting a troubled future of inflation in the USD. The bank has suggested that Bitcoin is simply too important to ignore. This comes amid large-scale moves into cryptocurrencies – especially BTC – by institutional finance in a 2021 bull run that has seen billions in a capital flood into the industry in an attempt to hedge Covid-19 inflation and the debasement of the USD. 

    Furthermore, following the SEC’s move to avoid regulating cryptocurrencies this year, the passage of this legislation will bolster the ongoing wave of interest in cryptocurrency adoption and trading regulations in Europe. 

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