The Ranking Says Germany is the Most Crypto-Friendly Country—Can It Be?
As crypto technologies prove their potential day by day, more people consider operating in the crypto business, and this creates a need for guidance regarding where to start. Countries’ ranking lists are prepared to satisfy this need for assisting potential operators. The ranking presented by Coincub is one of them, which lists the countries based on different criteria such as the number of initial coin offerings (ICOs), fraud case prevalence, and the availability of crypto courses by leading institutions. 1
According to the first quarterly report of Coincub, Germany has got first place in the Crypto-Friendly Countries Ranking by passing Singapore, the former number one.2 Although this ranking may not be a surprise considering that Germany was the first to recognize Bitcoin as a unit of value and its potential to be a financial instrument.
What has happened? (Beginning of a New Era or a False Alarm?)
As we have covered in the previous Vircon Legal news series, Singapore has started to display a relatively conservative approach towards crypto compared to its previous policy. Following this, Germany appeared at the top of the rankings to be the most crypto-friendly state while it was in fourth place at the end of 2021.3 However, this has raised questions about whether such rankings indicate the actual situation since the European Union (the “EU”) is associated with high taxation and complicated bureaucracy.4
The equilibrium among the countries seems pretty sensitive towards regulatory actions taken in other countries. Even if an epic change did not happen in Germany, it is now possible to see Germany on the top of the Coincup’s ranking list due to the possible backsliding in Singapore. According to the Coincup’s report, this change in ranks is based on five following reasons:
Zero tax policy for long-term savings
Number of Bitcoin and Ethereum nodes
Crypto adoption and potential affinity
Acceptance of institutions at a higher level
Germany’s crypto ecosystem
However, certain arguments suggest that the ranking does not reflect the actual status. In this post, such reasons and their relation to Germany’s position will be presented in detail and discussed by providing different perspectives.
1. Reasons and Discussion
1.Zero tax policy for long-term savings
The first reason for Germany’s current stance is the tax advantage. According to the Coincub’s report, the tax policy is regarded as “progressive” in Germany since it excepts users holding their assets for longer than one year from tax duties.
However, some argue that this only creates an advantageous situation for long-term “hodlers” but does not serve the decentralized finance (the “DeFi”)5. The actual promise of these technologies is rapid trades and transactions, and tax advantages for long-term investments do not precisely fit the spirit.6 Thus, based on the tax aspects for DeFi traders, Germany seems to lose its reputation7 that is given by the rank, several questions raise whether the ranking is a good indicator to consider before taking any action.
2.Number of Bitcoin and Ethereum nodes
Secondly, Germany’s higher numbers of nodes are emphasized compared to the nodes in the United States (despite there is a significant difference in their smaller population and GDP), and shown as a ground for making Germany number one.8
However, some explain this difference in the number of nodes with a decrease in the U.S., rather than an increase in Germany.9
3.Crypto adoption and potential affinity
Another factor making Germany crypto-friendly is the crypto adaption in the country and possible penetration due to the positive insights regarding crypto. For example, it is revealed that 16% of the Germany population, whose age ranges from 18 to 60, has been trading in the last six months according to the KuCoin’s report, and this has reshaped the rankings.10
In addition to the current status, there is an affinity towards the crypto since reports show that 44% of the population also have an intention to widen their financial portfolio to the crypto space.11
However, Germany’s rate of adoption and leadership in the crypto-friendly list is also criticized on some occasions.12 It is argued that Germany’s adoption rate lacks the power to place Germany in the first place when the adoption rates are compared to the rates in Ukraine, Venezuela, Russia, and India.13
4.Acceptance of Institutions at a Higher Level
Following this relatively high adoption on the public level, Capital has reported that the saving banks operating in Germany with more than 1 trillion Euros may offer a wallet for cryptocurrency trade.14 In addition to this, it is known that Deutsche Bundesbank, the German Central Bank, has been working on distributed ledger technology asset settlements.15 In other words, the penetration in public seems to be completed by the higher institutions; and Coincup evaluates this as a plus for crypto.16
Although such news are regarded positive for crypto friendliness of Germany, attention attributed to the banks is also criticized since it is found contrary to the objective of decentralization.17
Although one of the fundamentals of blockchain technologies is to eliminate the need for an intermediary and create a trustless environment for the operators, the banks are a fact of today’s world, and their participation, at least during the transition from centralized to decentralized, seems vital. For this reason, acceptance of crypto by higher institutions may not be so bad at all.
5.Germany’s Crypto Ecosystem
Last but not least, current situation of crypto ecosystems is among the reasons why Germany has to place as a leadership. In general, 20 crypto exchange-traded products are listed by German stock market operator Deutsche Boerse on its digital exchange, Xetra.18 Along with Deutsche Boerse, fund issuers like WisdomTree, CoinShares, and 21Shares also listed their products in Germany.19
Moreover, it is known that German investors get involved with crypto and blockchain companies and platforms such as 1inch Exchange, Nuri, FinLAB, Minespider, the NAGA Group, Tangany, Coindex, CyryptoTax, Upvest, Fiona, Blocksize Capital, USDX Wallet, Bitbond and the Iota Foundation.20
Besides, it is known that Germany is also a home to Northern Data which is the EU’s largest mining company.21
Even a relatively well-established crypto market is present in Germany thanks to the blockchain startups having their settlements in Germany, some argue that this does not turn Germany into a crypto hub since it lacks the most popular companies.22
2. Evaluation
Germany may not be the best in each foregoing factors individually. However, still Germany may be the most friendly country as a combination of second and third places.
Since member states are required to refrain from creating disadvantageous situations for one another, it is not advisable to take national legislation of each EU member states into consideration while assessing friendliness of a place for crypto companies. Therefore, the EU-level legislation and decisions of the Court of Justice should also be followed before starting a business in any EU member state.
Although tax, credit, and security law related issues do not fall under the exclusive competence area, the EU seems to take the control and set the general frame for operations regarding such technologies and the current legislative actions like the Markets in Crypto-assets Regulation (the “MiCA”) and Transfer of Funds Regulation (the “TFR”) prove the EU’s current approach. Thus, the influence of European actors should not be underestimated while assessing the position towards crypto in a member state.
What’s next?
Germany’s EU membership is shown as one of the grounds why Germany cannot be the most crypto-friendly country. However, it should be noted that Germany is among the EU’s strategy-setting motors. Thus, it is one of the member states that can influence the EU to be crypto-friendly even as a whole. For this reason, Coincub’s recent quarterly report seems one of a kind that needs not to be ignored, but become a signal for a more crypto-friendly approach that can be adopted in the EU.
Strack, Ben: Report: Germany Is the Most Crypto-friendly Country, April 14, 2022, accessed via https://blockworks.co/report-germany-is-the-most-crypto-friendly-country/ on April 28, 2022.
Strack, Ben: Report: Germany Is the Most Crypto-friendly Country, April 14, 2022, accessed via https://blockworks.co/report-germany-is-the-most-crypto-friendly-country/ on April 28, 2022.
Strack, Ben: Report: Germany Is the Most Crypto-friendly Country, April 14, 2022, accessed via https://blockworks.co/report-germany-is-the-most-crypto-friendly-country/ on April 28, 2022.
Reynolds, Sam: First Mover Asia: Is Germany Really the Most Crypto-Friendly Jurisdiction? Maybe Not; Bitcoin Gains, April 20, 2022, accessed via https://www.coindesk.com/markets/2022/04/19/first-mover-asia-is-germany-really-the-most-crypto-friendly-jurisdiction-maybe-not-bitcoin-gains/ on April 28, 2022.
Reynolds, Sam: First Mover Asia: Is Germany Really the Most Crypto-Friendly Jurisdiction? Maybe Not; Bitcoin Gains, April 20, 2022; accessed via https://www.coindesk.com/markets/2022/04/19/first-mover-asia-is-germany-really-the-most-crypto-friendly-jurisdiction-maybe-not-bitcoin-gains/ on April 28, 2022.
Reynolds, Sam: First Mover Asia: Is Germany Really the Most Crypto-Friendly Jurisdiction? Maybe Not; Bitcoin Gains, April 20, 2022; accessed via https://www.coindesk.com/markets/2022/04/19/first-mover-asia-is-germany-really-the-most-crypto-friendly-jurisdiction-maybe-not-bitcoin-gains/ on April 28, 2022.
Reynolds, Sam: First Mover Asia: Is Germany Really the Most Crypto-Friendly Jurisdiction? Maybe Not; Bitcoin Gains, April 20, 2022; accessed via https://www.coindesk.com/markets/2022/04/19/first-mover-asia-is-germany-really-the-most-crypto-friendly-jurisdiction-maybe-not-bitcoin-gains/ on April 28, 2022.
Lea, Jon: Germany Takes The Top Spot In The Latest Q1 International Crypto Ranking Guide For 2022, April 13, 2022, accessed via https://coincub.com/crypto-ranking-guide-for-2022-q1/ on April 29, 2022.
Buckler, Nicole: Germany the Most Crypto-Friendly Country? Hell, No!, April 21, 2022, accessed via https://beincrypto.com/germany-the-most-crypto-friendly-country-hell-no/ on April 28, 2022.
Strack, Ben: Report: Germany Is the Most Crypto-friendly Country, April 14, 2022, accessed via https://blockworks.co/report-germany-is-the-most-crypto-friendly-country/ on April 28, 2022.
Victoria: KuCoin Releases Into the Cryptoverse 2022 Germany Report, Highlights 44% of Germans Are Motivated to Invest in Cryptocurrencies to Be a Part of “the Future of Finance”, March 24, 2022, accessed via https://www.businesswire.com/news/home/20220324005035/en/KuCoin-Releases-Into-The-Cryptoverse-2022-Germany-Report-Highlights-44-of-Germans-Are-Motivated-to-Invest-in-Cryptocurrencies-to-Be-a-Part-of-“the-Future-of-Finance” on April 28, 2022.; Strack, Ben: Report: Germany Is the Most Crypto-friendly Country, April 14, 2022, accessed via https://blockworks.co/report-germany-is-the-most-crypto-friendly-country/ on April 28, 2022.
Buckler, Nicole: Germany the Most Crypto-Friendly Country? Hell, No!, April 21, 2022, accessed via https://beincrypto.com/germany-the-most-crypto-friendly-country-hell-no/ on April 28, 2022.
Buckler, Nicole: Germany the Most Crypto-Friendly Country? Hell, No!, April 21, 2022, accessed via https://beincrypto.com/germany-the-most-crypto-friendly-country-hell-no/ on April 28, 2022.
Strack, Ben: Report: Germany Is the Most Crypto-friendly Country, April 14, 2022, accessed via https://blockworks.co/report-germany-is-the-most-crypto-friendly-country/ on April 28, 2022.
Özelli, Selva: Here is why Germany is ranked the most crypto-friendly country, April 24, 2022, accessed via https://cointelegraph.com/news/here-is-why-germany-is-ranked-the-most-crypto-friendly-country on April 28, 2022.
Strack, Ben: Report: Germany Is the Most Crypto-friendly Country, April 14, 2022, accessed via https://blockworks.co/report-germany-is-the-most-crypto-friendly-country/ on April 28, 2022.
Buckler, Nicole: Germany the Most Crypto-Friendly Country? Hell, No!, April 21, 2022, accessed via https://beincrypto.com/germany-the-most-crypto-friendly-country-hell-no/ on April 28, 2022.
Strack, Ben: Report: Germany Is the Most Crypto-friendly Country, April 14, 2022, accessed via https://blockworks.co/report-germany-is-the-most-crypto-friendly-country/ on April 28, 2022.
Strack, Ben: Report: Germany Is the Most Crypto-friendly Country, April 14, 2022, accessed via https://blockworks.co/report-germany-is-the-most-crypto-friendly-country/ on April 28, 2022.
Özelli, Selva: Here is why Germany is ranked the most crypto-friendly country, April 24, 2022, accessed via https://cointelegraph.com/news/here-is-why-germany-is-ranked-the-most-crypto-friendly-country on April 28, 2022.
Özelli, Selva: Here is why Germany is ranked the most crypto-friendly country, April 24, 2022, accessed via https://cointelegraph.com/news/here-is-why-germany-is-ranked-the-most-crypto-friendly-country on April 28, 2022.
Buckler, Nicole: Germany the Most Crypto-Friendly Country? Hell, No!, April 21, 2022, accessed via https://beincrypto.com/germany-the-most-crypto-friendly-country-hell-no/ on April 28, 2022.