German banks allowed to sell and store crypto. How it may benefit Bitcoin?

A new business area opened up for German banks. Starting in 2020, German banks can sell and have custody of Bitcoin and other crypto-assets.

Earlier German banks were not allowed to offer their customers access to crypto assets. Now after the German federal council clearance, banks can provide their customers easy, one-stop direct access to digital assets.

Many of the industry experts call this move beneficial for bitcoin and crypto. Sven Hildebrandt, head of the consulting firm DLC, says: “Germany is well on its way to becoming a crypto-heaven. The German legislator is playing a pioneering role in the regulation of [crypto-assets].”

So, how the new bill benefits Bitcoin?

Currently, much of the Bitcoin and cryptocurrency popularity in Germany is among the younger generation aged 18-29 years. Though more than 55% of internet users know about cryptocurrencies, they are reluctant to invest in them citing a lack of investment protection (custody and regulatory status) as a key reason.
Source: German consumer centers of Hesse and Saxony survey – Nov 2018.

Much of this viewpoint will change once banks start selling and storing cryptocurrencies. Banks are well-known for their aggressive tactics to sell a variety of financial products to clients. Now with the addition of crypto-investment products, Banks could provide wider visibility of digital assets among all age investors.

Additionally, given the experience of banks in risk management and client’s assets safekeeping, clients may feel comfortable to invest via banks and ride the crypto bandwagon.

Hidden agenda: Undermine ECB digital currency:

Germany as a hotspot:
Germany is a crypto tax-free country. Here Bitcoin and other cryptos are private money, similar to foreign currency under rule 23 EStG. According to this rule, if capital earnings from bitcoins and cryptocurrencies are less than 600 euro, it’s tax-exempt. Furthermore, if an investor sells Bitcoin/ cryptocurrencies after one year, then capital gains are totally tax-exempt.

Also, Germans are one of the top 5 most active users in the crypto space [Based on visitors count in popular crypto-related websites including in CoinMarketCap, Bitfinex, CoinGecko]. Additionally, among internet users, nearly 55% of Germans know about cryptocurrencies [Source: German consumer centers survey].

The new bill could offer banks to tap into this growing market. Bobby Ong, Co-founder of CoinGecko said, “With this development, banks will now be able to sell and custody cryptocurrencies just like how they are selling other asset classes, such as gold, stocks, and insurance”.

It will create a new business area for banks to profit by selling crypto and collecting storage fees. This could be one way to look at this development. However, Europen central bank push for euro digital currency suggests an alternative motive.

Tap into the ‘money of the future’:

Currently, Europen central bank (ECB) is working on a proposal for euro digital currency. Under its most ambitious plan, euro-zone residents can directly open an account at the ECB. That would make existing banks or clearing counterparties largely redundant.

Many European banks unwelcome the move. Last month German bank association (which represents more than 200 banks) issued a statement. In it, the association asked ECB to work together with the banks to build a digital currency. A system that ensures banking system sustainability and interpretability with digital euro.

Fearing the inevitable, Germany may be attempting to undermine the ECB’s plans. The German banks as the next step may look to develop a crypto-based payment network. Under this, users can connect their bank accounts to a universal digital wallet. This way banks could extend its services from storage to payment and earn processing fees.

Berlin already has a huge growing startup base (around 170) that looks at blockchain or distributed ledger technology. There is great interest from the banks to participate and partner with these start-ups to transform the mass market.

Based on the number of Bitcoin merchants and ATMs, fewer merchants accept Bitcoin payments in Germany compared to their European counterparts. As per another source – Investopedia, none of the German cities appear in the top 10 list of Bitcoin hotspots. If banks could offer complete crypto-assets management, merchants’ and users’ adoption could also increase.