DACH-focused funds primed to invest in decentralised finance

Five major findings of investment fund survey

Compared to traditional financial instruments, consumerisation of investment in digital assets is at an early stage. This is despite the disruptive potential of blockchain technology in the financial sector, a large volume of investments by leading market players, large-scale pilot projects and successful decentralised finance and central bank digital currency projects.

Countries differ significantly in legal frameworks and how they regulate digital assets, which impacts their adoption by investment organisations.

However, Germany is becoming a leader in the digital assets trend. In late April and early May 2021, the Bundestag voted on three bills that have the potential to significantly impact the crypto and investment market. These legal initiatives are the culmination of a two-year programme to modernise Germany’s financial market. The regulation creates an opportunity for a new wave of blockchain projects in the tokenisation of financial instruments, custodian storage of crypto assets and investments at the junction of DeFi and CBDC solutions.

Even so, the cornerstone of any innovation is the willingness of market participants to implement it. Therefore, MINDSMITH, OnGrid Systems and DEKIS conducted a survey of experts and representatives of investment funds present in Germany, Austria and Switzerland (DACH) to coincide with the introduction of Germany’s fund location act, which came into force on 1 July. With this, domestic special funds will be allowed to invest up to 20% of assets under management in crypto assets, such as bitcoin. This will change the market for DACH-focused funds, as revealed by five major findings from the survey.

1. DACH-focused funds are at an early stage of interest in digital assets, but adoption is on the way.

Around 88% of DACH-focused funds who responded to the survey are not currently investing in digital assets. However, 4% of respondents are, which is a notable milestone considering the conservative stance of the DACH-focused funds.

2. Of the respondents, 46% are interested in investing in digital assets and 7% are planning to invest by the end of 2021.

Almost half of DACH-focused funds are interested in digital assets and are ready to study the issue. The development of the DACH investment landscape will largely depend on the results of the early adopters’ investments. Looking more closely at early adopters, 7% of respondents are currently at a late planning stage and are considering investing in the digital assets market later this year. New regulations and the introduction of CBDCs and a digital euro will accelerate adoption. However, as the financial industry is highly regulated, the degree of freedom firms have will depend on compliance requirements.

3. Over the next three years, there will be inflows of $100bn-$657bn into the digital asset market from the DACH region.

There is currently around €1.2tn invested in Spezialfonds with fixed investment conditions. With around 46% of respondents interested in investing in digital assets, the potential investment volume over the next three years could reach $657bn. Even if using conservative estimates, with 7% of respondents at a late planning stage, investments of up to $100bn in digital assets can be expected by the end of 2021.

4. Regulatory uncertainty, lack of understanding and infrastructure are the major barriers to investment.

Regulatory uncertainty has become a key barrier to investing in digital assets for 86% of DACH-focused funds. The lack of service providers and the availability of infrastructure is a barrier for 57% of respondents, but there has been significant progress on the part of regulators recently. The survey showed that liquidity, volatility, price levels and lack of traditional products make investing in digital assets not worth the trouble yet for many respondents. The lack of understanding of digital assets, which is a barrier for almost 60% of DACH-focused funds, will become one of the key obstacles to market development in the near future. But, as with cryptocurrencies, this is overcome as early adopters gain experience.

5. Investors are curious about DeFi, which creates an opportunity at the intersection of blockchain and CBDCs.

One of the most impressive scenarios for the development of DACH-focused funds’ investments in digital assets is the potential for investors to interact with DeFi solutions – 14% of respondents are interested in this. Now the big question is: which stablecoins will act as a basis for the regulated DeFi ecosystem? Chances are high that a digital dollar, digital yuan, digital euro and other CBDCs will do the job.

Vsevolod Michalevsky is CEO of OnGrid Systems, a blockchain and decentralised finance solution development platform.

Join Today

Connect with our membership team

Scroll to Top