The Future of Cryptocurrency Adoption in Germany
- There’s already a significant base of early users from which further adoption could be driven.
- Germany will increasingly see the tokenization of fiat currencies and securities.
Germany is one of the world's leading economic powers. However, it isn't quite one of the world's leading cryptocurrency nations, with countries such as Switzerland, Malta, Japan, Singapore, Luxembourg and Liechtenstein having already introduced more progressive legislation related to crypto and blockchain technology.
Still, Germany has witnessed relatively encouraging cryptocurrency adoption until now, while the government has just begun pushing through legislation and strategy documents that should create more propitious conditions for crypto.
In other words, the foundation is already in place for Germany to become a leading crypto-nation. And as experts in Germany tell Cryptonews.com, the country is likely to cement its place as the most crypto-friendly state in the EU, while adoption among the general German public is also set to grow over the next few years.
The present reality of adoption in Germany
Cryptocurrencies are hardly ubiquitous in Germany, but fortunately there’s already a significant base of early users from which further adoption could be driven.
"In Germany there are currently approx. 800,000 crypto currency owners," explains Philipp Sandner, the head of the Frankfurt School Blockchain Center. "This represents circa 1% of the total population but in the traditional key target group (aged between 20 and 45, tech-affine, male) adoption is around 8-10%."
It's worth pointing out that Facebook usage among the general German population is still only 38.4%, so crypto is already off to a good start given its initially niche appeal. On top of this, Sandner tells Cryptonews.com that Germany's startup ecosystem is viewing cryptocurrency more enthusiastically.
"There is a thriving startup ecosystem in Berlin, Munich and Frankfurt. And in Stuttgart, there is Börse Stuttgart having now launched a crypto segment on their exchange – as the first regulated exchange in Europe."
That said, Sandner also notes that larger companies and institutions remain somewhat sceptical of crypto "Besides such landmark projects from a few companies, the topic of crypto assets is largely not understood and traditional financial organizations are very reluctant approaching this new field."
Shift in policy, shift in adoption
Fortunately, new rules being introduced by Germany's financial regulator are likely to go some way to reducing institutional aversion.
"Through new regulation coming up as of January 2020, it will be legitimate for financial institutions to hold and trade crypto assets, once they apply for a license with Germany's BaFin [Federal Financial Supervisory Authority]," says Sandner. "This will significantly drive adoption of crypto assets among financial institutions and also in the retail sector."
As reported, a new cryptocurrency payment solution is in the works in Germany after major crypto payment processor BitPay left this market earlier this year due to new regulations.
Another key driver of adoption and growth will be the German government's Blockchain Strategy, which was published in September and which outlines how Germany will nurture its crypto ecosystem in the near and more distant future.
"In September, the Merkel administration launched a national Blockchain Strategy, to pave the way to the token economy," says Benjamin Jones, the co-founder/CTO/CEO of Germany-based exchange Bitwala.
"The strategy is quite comprehensive and addresses a broad set of industries, research & development efforts, and even pilots for the use of blockchain-backed identification of citizens."
It's within such a context that both Jones and Sandner predict that Germany will increasingly see the tokenization of fiat currencies and securities.
"Soon, banks and other financial organizations will understand that they need to build up the capability to custody digital assets," says Sandner, "such that they in the future can manage the Euro (once on a blockchain) and securities (once on a blockchain). This knowledge has to be built up now with crypto assets. If companies do not manage to build up this knowledge or to source it in, they will face severe risks."
Likewise, Jones tells Cryptonews.com that it's reasonable to expect more utility tokens to emerge and gain traction in Germany, rather than only the first wave of cryptocurrencies like Bitcoin and Ethereum. "The Blockchain Strategy also states (see page 8) that there is an ongoing institutional dialogue with monetary policy makers to digitize central-bank money flows," he adds. "That could be a starting point."
The more distant future
Looking ahead to the more distant future, it's likely that such steps will facilitate wider adoption of cryptocurrencies among the general German public, and also the wider harnessing of crypto- and blockchain-based technology by banks and institutions.
"It starts with the key target group (aged between 20 and 45, tech-affine, male) and then spills over to other groups slowly," says Sandner. "This is how adoption in the technical space always takes place."
In terms of the particular cryptocurrencies likely to gain more popular adoption, Sandner suggests that Bitcoin and Ethereum are probably the most interesting for most Germans. "People will see that these technologies will not go away," he says. "A state-owned bank recently analyzed Bitcoin and came to the conclusion that it will soon be 'as hard' as gold when analyzing specific metrics."
On the other hand, the Blockchain Strategy document makes it clear that the German government will not accept privately run stablecoins like Facebook's Libra. As such, anyone expecting stablecoins or 'private' cryptocurrencies to take off in Germany is likely to end up disappointed.
But all in all, cryptocurrency (and blockchain) adoption is likely to increase in Germany in the coming years, with Sandner expecting the country to be "front-running" in the EU. The country might see the increased tokenization of securities, the possible emergence of a digitized euro, the growth of utility tokens, and also the growing adoption of 'classic' cryptocurrencies such as Bitcoin.