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Germany: Experts Call For Increasing ICO Regulation Pressure

05 October 2018 19:18, UTC
Germany: Experts Call For Increasing ICO Regulation Pressure
By Theodore Serdotetskiy

Germany plays a leading role in the economy of the European Union. After the unification of Germany, Gerhard Schroeder's reforms contributed to economic growth and significantly reduced the unemployment rate. In 2018, the nominal GDP of Germany ranked third in the world - $4,211 trillion. The main sectors of German GDP are logistics and communications, as well as the construction industry. Germany has the social market economy, so the equal distribution of resources for the Germans is no less important than economic growth. The employment index is high - 0.936. Germany is one of the TOP exporting countries in the world. Thus, in 2017, Germany registered the highest export growth in six years. In addition, Germany has long been one of the leaders in real estate investment.

Interesting facts about the economy of Germany:

  • Germany is characterized by the so-called ”Rhine capitalism", implying a strong intervention of banks in the country's economy. The fact is that German banks are major shareholders of companies belonging to the service sector, as well as industrial. This is the reason for the active participation of banks in business decision-making.

  • Now the Germans earn more than they have time to spend. The Federal Statistical Office reports that in the first half of 2018, the Germans had income that exceeds expenditures by more than €48 billion. Such an incredible surplus was due to taxes and social contributions.

  • After the Fukushima Daiichi nuclear disaster in Japan, the German authorities decided to completely replace nuclear power with renewable sources. Now green power can already provide German households for the whole year.

  • Despite the high rates, German exports do not depend on any particular product. Everything is quite balanced. Even cars, which make up the majority of exports, account for only 11% of production.

Cryptocurrency: how the German digital market is regulated

In Germany, the authorities have long been developing a regulatory framework for the effective introduction of VCs into the economy.

The Federal Ministry of Finance (BMF) formally recognized the digital currency back in 2013, giving it the status of “unit of account”, a financial instrument with can be used for private transactions. However, companies that wanted to use VCs for commercial transactions had to coordinate with The Federal Financial Supervisory Authority (Bafin).

Germany is an intensively developing country, which shows flexibility to global trends, so on March 1, 2018, the BMF said that the cryptocurrency is a legal tender in terms of taxation. But transactions made with digital currency are not taxed like capital outflow, because in Germany the cryptocurrency is not considered a commodity like in the USA. At the same time, citizens who buy goods or services with cryptocurrency are obliged to pay VAT. But financial intermediaries, such as crypto exchanges, are free from taxation. This also applies to the fees of miners.

In Germany, crypto companies are in fact financial companies, so they are subject to license requirements and a financial report to BaFin is obligatory. Moreover, the authorized capital of crypto companies must be at least €730 000. 

On June 1, 2018, BaFin confirmed that six German banks have been making transactions with digital currency for a long time. Now the Germans can easily exchange digital currency for fiat money both through cash desks and ATMs.

Germany is rightly considered to be the leader in terms of thoughtful legislation in relation to cryptocurrencies. And if we talk directly about BTC, it is worth noting that this digital currency is accepted for payment even in the banking and corporate sectors. It is also significant that the largest community of "Bitcoin Kiez" is located in Berlin. At the moment, total ICO funding in Germany is around $6.35 mln.

The crisis of German ICOs. What awaits it in the future?

Despite the fact that the Germans have taken care of this problem for a long time and the legal framework for the virtual market is developed, this does not mean that the German players of the crypto market are guaranteed to be protected from losses. So, over the past year, German startups fell even more than BTC (-50%) and ETH (-70%). At the moment, only eight startups registered in Germany were able to complete the ICOs. Two of these companies Neufund and Wysker were able to issue tokens whose value did not collapse. Five other startups, including Savedroid and Iconiq Lab, lost 40% and 92% of their original price, respectively. RedBux, a project from the adult industry, was completed in May this year. However, its token is still not on the list of any crypto-exchange.

In the opinion of the investor and Crypto Advisor Marian MERTES, the fall of the ICO projects was not unexpected, as crypto sphere attracts many people eager to get “fast money,” and, of course, many of them are scams: “The chance to make lots of money fast attracted people that made a scam”.

ICO-Advisor and Blockchain-IT-Forensics specialist Michael GEHLERT also believes that the reason for the failure of investors in the ICOs is greed and a superficial knowledge of the crypto market. However, GEHLERT thinks that this case concerns not only the German ICO projects, the number of which is only 2,07% in the world. In fact, the loss of investments is global: "Not only investors in German ICOs have lost up to 90% of their capital. The same happened with international ICO investments in Asia, Russia, the USA, and Europe. It is a worldwide situation”.

GEHLERT added that today's collapse of the ICOs will not make the industry less attractive for further investment: “More and more institutional investors, who know how to use the negative experiences, are now entering the market. Moreover, the regulative influence of the government (legal compliances) and newly created authorities will provide more security in the future. Probably the same as in the United States, one immediately looks for a new monetizable ICO project to collect money because one thing is for sure, the greed for fast rewards that exists in the minds of very broad social classes will never end. And this is by no means a typical German phenomenon, but one that is recognizable in all cultures. But the Germans say: "Clean your mouth, continue".

In conclusion, it can be said the crisis of the German ICOs is not something extraordinary in the global context. CEO at the blockchain based social security startup Paul MIZEL is sure that drop in the unregulated ICO projects is a positive sign for market stabilization. Moreover, the losses affected inexperienced investors, who were beginners: “There is a saying that one shouldn't keep all eggs in one basket, so if an investor puts all his assets in one project the risk will be quite high. But the market is expected to improve again and upcoming ICOs will benefit from this rebound”.

On the example of Germany, it became obvious that even the advanced countries, that were the first to develop laws for the digital market, still far from full regulation of the crypto sphere. That’s why the issue of tightening regulation is now becoming increasingly important. Experts realized this long ago: this is a necessary measure to ensure that the players of the crypto market are responsible for their activities (especially ICO projects) and to eradicate scams and create a comfortable environment for crypto traders.

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