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Fitch Says Germany's ‘Spezialfonds’ Investing in Crypto Face Liquidity Risk

A law passed earlier this year allows Spezialfonds, open only to institutional investors, to invest up to 20% of assets in cryptocurrencies.

Aug 11, 2021 at 2:27 p.m. UTC
Updated Sep 14, 2021 at 1:38 p.m. UTC

A German law that allows Spezialfonds (special funds) to allocate as much as 20% of their assets to cryptocurrencies could pose a liquidity risk, Fitch Ratings said. 

  • Spezialfonds are open only to institutional investors and had an estimated €2 trillion ($1.17 trillion) of assets under management at end-March 2021.
  • By bringing cryptocurrencies into the traditional, regulated financial system, the law passed earlier this year could also result in increased exposure to crypto assets for retail investors, whose insurance policies and retirement savings are managed by those institutions.
  • “If price volatility triggers trading breaks for exchange-traded cryptocurrency assets, this could make it more difficult for managers of cryptocurrency-exposed Spezialfonds to meet investors’ redemption requests or other obligations,” Fitch said.
  • The ratings company said it does not believe that allocations to crypto assets will reach close to the 20% allowed because Spezialfonds institutions are “traditionally risk-averse” in their approach to asset allocation.
  • If the funds were to invest the full amount allowed, Fitch calculates maximum crypto-asset investments of up to €360 billion ($422 billion) – which compares with bitcoin’s current market capitalization of around $860 billion.

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