Germany’s New Law Means 4,000 ‘Spezialfonds’ Can Now Invest In Bitcoin

Landmark legislation comes into force in Germany today, giving institutional investors permission to hold crypto assets. 

By Adriana Hamacher

In brief

• A new law allows "spezialfonds," a favorite investment vehicle for German institutions, to invest in crypto assets for the first time.
• Market experts estimate that up to $415 billion could flow into crypto assets as a result.

Germany’s ‘Fund Locations Act’ came into force today, meaning that thousands of institutional investment funds will now be eligible to invest in Bitcoin and other crypto assets for the first time. 

Spezialfonds are favored by institutional investors and the new law allows fund managers to allocate up to 20% of a Spezialfond to crypto-assets. Interest is exploding, according to market experts, who anticipate that the new regulations could unleash significant investment in the crypto market. 

Sven Hildebrandt, head of Hamburg blockchain consultancy DLC Distributed Ledger Consulting, told Decrypt that he projects a theoretical inflow in the order of €350 billion ($415 billion) into crypto assets. That’s a significant amount, and "damn huge," according to Hildebrandt, considering that the current market capitalization of Bitcoin is $632 billion. 

His calculations are based on estimations that around €1.87 trillion ($2.2 trillion) is tied up in approximately 4,000 spezialfonds. 

"This won't happen overnight, but we are talking about the largest investment vehicle that we have in Germany—literally all the money is in there," said Hildebrandt.

German law moving in the right direction

There is no United-States equivalent to Spezialfonds, but they’ve been likened to the Special Investment Funds (SIFs) in Luxembourg, and Qualifying Investor Funds (QIFs) in Ireland. These types of investment vehicles are attractive to institutions because they allow for flexibility and are much less restrictive in requirements for liquidity, diversification, restrictions on borrowing, and leverage. Simultaneously, a robust regulatory framework provides assurance for investors.

Germany’s alternative investment advocacy agency, the Bundesverband Alternative Investments (BAI) has praised the new legislation. It is now calling for it to be extended to include public funds. 

Hidebrandt also hailed the measure as a big boost to Germany’s position as a financial investment hub, and experts believe it will nurture the crypto industry as a whole by further legitimizing the asset class. 

"The addition of crypto assets in Spezialfonds is an important step for their acceptance," German parliamentarian Frank Schäffler told Decrypt in April, when the law was approved by the Bundestag.

He added, "Here, the law is going in the right direction and we expressly welcome it."