Neufund, a leading Germany-based Fintech startup and security token issuance platform, published an open letter to the German Bundestag today. The letter was in response to a recent court ruling in Germany that determined Bitcoin was not a financial instrument. The case centered around a young entrepreneur who launched a Bitcoin exchange in 2013 when he was just sixteen years old. The individual in question was subsequently fined for violating the German Banking Act (KWG). This ruling has now been overturned.
The letter to the Bundestag is authored by Neufund co-founder and CEO Zoe Adamovicz and Frank Thelen, a serial founder, investor and CEO of VC Freigeist Capital.
According to Neufund, the new court ruling by the Berlin Higher Regional Court puts the existing regulatory environment in Germany in question. Neufund states that the court determined Bafin (Germany’s security regulator) exceeded its authority. The ruling creates an odd dynamic for digital asset exchanges as the “exchanges for cryptocurrencies would not be subject to any existing regulation, thus they would suddenly no longer be subject to regulation.”
The reality of operating in a jurisdiction where there is absolutely no regulatory oversight whatsoever, runs counter to what industry leaders seek – which is a structured and compliant ecosystem where crypto can thrive.
Speaking to Handelsblatt, Professor Philipp Sandner, head of the Blockchain Center of the Frankfurt School of Finance and Management, described the ruling as forcing the hand of elected officials:
“Politicians must finally clarify the legal nature of cryptocurrencies. In five to ten years, every conceivable asset, programmed as a smart contract, can be stored on a blockchain system.”
The ruling by the German court is a strange twist that appears to run counter to the global market for Bitcoin, a digital asset which is clearly used for financial purposes such as speculation and transactions.
The letter by Adamovicz , who is a high profile crypto entrepreneur, and Thelen, is available here. The letter is also republished below.
Open letter to the Bundestag on Blockchain regulation in Germany
Berlin, 23 October 2018 — This call to action is inspired by the ruling no. (4) 161 Ss 28/18 (35/18) of the Berlin Higher Regional Court from 25.09.2018 where it was held that Bitcoin is not a financial instrument. This ruling comes in spite of a qualification enforced over the last years by the German Financial Supervisory Authority (Bafin) which stated that Bitcoin should be considered as a “calculative unit” (Rechnungseinheit). In its ruling, the Berlin Higher Regional Court stated that by extending existing law beyond the intended purpose, or even attempting to create new law, Bafin exceeded its authority. The ruling means that exchanges for cryptocurrencies would not be subject to any existing regulation, thus they would suddenly no longer be subject to regulation.
Honorable Members of the Bundestag,
No week passes by without headlines in German press drawing comparisons between Berlin and Silicon Valley, and a major part of this conversation is focused on the inaccessibility of capital and funding, which is crucial for innovative companies to grow. Despite being aware of this issue for at least 20 years now, Germany still has not produced any “technological unicorn” the size of Apple, Netflix, or Twitter. We already missed the opportunities presented with the internet revolution.
In order for innovation to thrive two things are needed: funding and regulatory certainty. Both of these elements are interlinked with one another. Where there is no regulatory guidance there will be no innovation. Only 1 in 10 startups is statistically successful, and taking that into consideration is an inseparable part of Venture Capital investments. Funding innovation is always risky, but if it additionally carries regulatory uncertainty, that risk is increased dramatically, beyond the threshold of what is bearable. As a result, investors do not invest, thus entrepreneurs do not innovate.
Over the last years Germany has been presented with a unique opportunity to take the lead on developing Distributed Ledger Technology (DLT). Our ecosystem of Blockchain companies across the country stands at the frontier of this thriving innovation, with such prominent examples as Ethereum, Lisk, Web3 Foundation or Polkadot.
Unfortunately, the current regulatory environment surrounding DLT in Germany is uncertain, and the ruling of Berlin Higher Regional Court is a proof of that. If institutional watchdogs such as the German Financial Supervisory Authority (Bafin) do not have clear guidance from political bodies in place, they will not be able to execute their responsibilities. And if watchdogs do not know how to act, how can we expect that from entrepreneurs and investors?
It is a new situation for startups to deal with Bafin, and it is a new situation for Bafin to deal with startups. For such collaboration to work both sides have to adjust and find common ground. To delay, confuse, or refuse the dialogue to startups, means to stop them from growing.
Regulatory certainty needs to be assured now, otherwise we endanger the thriving Blockchain ecosystem in Germany. It is unacceptable that young entrepreneurs face criminal charges because watchdog institution have no clear regulation at hand. We can’t allow that valuable Blockchain companies keep on becoming a collateral damage of bad actors in the scene.
Dear Members of the Bundestag, we ask you to put DLT-specific guidance in place. German entrepreneurs and investors do not want to miss the opportunity to become leaders in the next technological wave. Many leading economies have already done that, with France serving as a great example.
We are aware of the initiatives and activities pursued by Bundestag members. Recent consultations lead by the Minister of State for Digitization Dorothee Bär and a working group initiated by the Senator Thomas Heilmann are a step towards the right direction.
Today, we would like to ask you for your support in form of three steps:
- Please, those of you who recognize Blockchain’s potential, step forward and express your views in form of a newspaper column, Twitter post or interview with widely recognized titles such as Handelsblatt. Although there is political will among many, it remains unheard. It is a political decision whether Germany wants to see flying cars, electric scooters and Blockchain, too. And if the political will is not expressed, it can’t have an impact
- Please, start preparing an official political statement coming from the Bundestag, that will give guidance to watchdogs, founders and investors on how to interpret existing regulation. We know it is unrealistic to ask the Bundestag to enact new laws in months time, and this is exactly why we ask you for guidance first.
- Intensify the efforts for preparing new regulations specific to Blockchain. Let’s not stay behind prominent neighbours like France.
Remaining silent means leaving a unique opportunity to chance. Confused institutions and civil servants despite their best intentions have been left without the leadership they need. The leadership, that must come from you.
Zoe Adamovicz, CEO at Neufund
Frank Thelen, Startup Founder and Tech Investor at Freigeist VC