An interesting year has come to an end for the crypto industry in Germany. Although blockchain technology and cryptocurrencies have not yet found wide acceptance in the country, more and more domestic institutions and investors are becoming interested in the crypto world thanks to legal clarity.
Here, we’ll look back at the most important developments in the German blockchain and cryptocurrency industries in 2021.
In terms of legal challenges, German legislators have increasingly been taking a lead role and 2021 was no exception.
Since June 2021, the Electronic Securities Act (Gesetz über elektronische Wertpapiere) established digital securities and abolished previously legally mandatory documentations of securities.
In December 2021, the first e-securities were already issued under the new law in the form of bearer bonds from DekaBank. The fast-growing restaurant chain Beets & Roots from Stuttgart also recently issued participation rights on the blockchain via the Invesdor platform.
Another step to boosting blockchain is the introduction of crypto securities. These are issued and managed on a mostly distributed ledger technology-based securities register and now encompass shares of funds. Now existing as a draft, the new ordinance (Verordnung über Kryptofondsanteile) will come into force in 2022.
The Fund Location Act (Fondsstandortgesetz) should also be mentioned as a milestone for the acceptance of digital assets. The act, passed in July 2021, enables special funds like pension and insurers, which are designed specifically for the institutional market, to invest up to 20% of their fund volume in crypto assets. Among large German fund providers, for example, Union Investment has already invested significant capital in Bitcoin (BTC).
According to a recent Bitkom survey, 59% of German companies see blockchain, in general, as an important future technology that is still greatly underestimated. Companies with more than 2,000 employees and/or in the financial sector especially are investigating the use of blockchain.
More and more German financial institutions are developing products and platforms for digital assets. Bison, the crypto trading app of the Stuttgart Stock Exchange, is already enjoying notable success. Since the beginning of 2021, the number of active users of Bison has doubled to around 550,000 while the trading volume is already hitting around $6.3 billion, or 5.6 billion euro.
Exchanges have been able to expand in the country. Austrian crypto exchange operator Bitpanda opened its new location in Berlin in 2021. Coinbase — which became an officially regulated crypto custodian in Germany in August — is building up its German business at full speed.
Banks won’t be left behind either. Private bank Hauck & Aufhäuser expanded its range of services in the area of digital assets, while savings banks want to offer customers trading and investing in major digital currencies like Bitcoin and Ether (ETH) directly from their current accounts.
While the blockchain adoption is increasing in Germany, regulators are responding in different ways to address the risks of an unregulated market.
In July 2021, the Federal Ministry of Finance published a draft regulation that could greatly impact the industry. The document concerns the current tax exemption of crypto investments after a hold period of one year. Specifically, it says, “The divestment period is extended […] to ten years if units of a virtual currency or token are used as a source of income and income has been generated from them in at least one calendar year.”
For investors with German residency, investments in tokens are generally interesting from a tax point of view because after the one-year holding period no more taxes are due on the capital gains. This will now be changed. If tokens are not only held but used for further returns, the holding period increases to 10 years. It, therefore, becomes difficult for the individual investor to use the token beyond buying and holding, as the reporting process is enormously time-consuming.
With this new regulation, Germany loses a lot of competitiveness, but it has advantages too. While the investor is waiting for a tax exemption for the actual investment, they can earn additional returns. But now, the Federal Ministry of Finance is intervening and proposing a change: Anyone who wants to earn an additional return with their crypto assets through staking, for example, automatically extends the holding period from one to ten years.