An interesting year has come to an end for the German cryptocurrency industry. Although blockchain technology and cryptocurrencies are not widely adopted in the country, more and more local institutions and investors are showing interest in the cryptocurrency world due to legal clarity.
Here we take a look at the most important developments in the German blockchain and cryptocurrency industry in 2021.
It will cover the reform of the blockchain securities law
When it comes to legal issues, German lawmakers are increasingly taking the lead, and 2021 is no exception.
Since June 2021, the Electronic Securities Act (Gesetz über elektronische Wertpapiere) created digital securities and abolished the previous mandatory notarization of securities.
In December 2021, the first electronic securities were already issued under the new law in the form of bearer bonds from DekaBank. Stuttgart-based fast-growing restaurant chain Beets & Roots recently issued blockchain rights through the Invesdor platform.
Another step towards increasing the blockchain is the introduction of cryptocurrencies. They are issued and managed in a widely distributed stock ledger based on general ledger technologies and now include fund units. The new regulation (Verordnung über Kryptofondsanteile) will go into effect as a draft in 2022.
The Foundation Site Act (Fondsstandortgesetz) should also be mentioned as a milestone on the road to digital asset adoption. The law, passed in July 2021, allows private funds, such as pension and insurance companies created specifically for the institutional market, to invest up to 20% of the fund’s volume in cryptocurrencies. Among the main German fund providers, for example, Union Investment has already invested heavily in Bitcoin (BTC).
Blockchain in the financial industry
According to a recent survey by Bitkom, 59% of German companies generally view blockchain technology as an important technology of the future that is still largely underestimated. Companies with more than 2,000 employees and/or in the financial sector are particularly exploring the use of blockchain.
More and more German financial institutions are developing products and platforms for digital assets. Bison, the crypto-trading app for the Stuttgart Stock Exchange, is already enjoying great success. Since the beginning of 2021, the number of active Bison users has doubled to about 550 thousand, and the trading volume has already reached about 6.3 billion dollars or 5.6 billion euros.
Stock exchanges were able to expand into the country. Austrian crypto exchange operator Bitpanda opened its new location in Berlin in 2021. Coinbase, which became an official cryptocurrency broker in Germany in August, is ramping up its operations in Germany by leaps and bounds.
Banks will not be excluded. Privatbanken Hauck & Aufhäuser has expanded its digital asset services, and the savings banks want to offer customers trading and investing in major digital currencies such as Bitcoin and Ether (ETH) directly from their checking accounts.
The rules are getting stricter
While blockchain adoption is increasing in Germany, regulators are reacting differently to the risks of an unregulated market.
In July 2021, the Federal Ministry of Finance published a draft regulation that could have a strong impact on the industry. The document applies to the current tax exemption for cryptocurrency investments after a one-year holding period. Specifically, it states: “The sale period […] is extended to ten years if units of the virtual currency or token are used as a source of income and income has been received from them for at least one calendar year.”
For investors based in Germany, investing in tokens is usually very interesting from a tax point of view, because after one year of ownership, you no longer need to pay capital gains tax. Now this has to change. If the tokens are not only stored, but also used to generate other returns, the holding period increases to 10 years. Therefore, it becomes difficult for an individual investor to use the token after purchase and hold, because the reporting process is very time-consuming.
With this new regulation, Germany loses a lot of its competitiveness, but it also has advantages. While the investor waits for the tax credit for the investment itself, he can make additional profits. But now the Federal Treasury is stepping in and proposing a change: anyone who wants to make additional profits from their cryptocurrency, for example through an effort, automatically extends the holding period from one year to ten years.
The federal government also wants to regulate the anonymity of cryptocurrencies. In the future, trading platforms such as crypto exchanges will be required to collect information from senders and recipients such as names, addresses and account details.