Germany Attracts Crypto Startups With Lax Regulations

New projects "migrate" to Europe, as the US tightens crypto policy.

by Viko
06 March • 2.5 min
In Regulation
New crypto startups are increasingly looking to establish in Europe as the US and some Asian countries have been tightening regulations in the segment, and Germany appears, quite surprisingly, to have become a preferred place for innovative tech companies seeking to raise funds via Initial Coin Offerings (ICOs), Handelsblatt reports.

The environment in Germany seems perfect for ICOs, featuring stable economy combined with tolerant policy regarding cryptocurrencies, similar to Switzerland, Gibraltar and the Cayman Islands.

However, German politicians are voicing concerns about lax ICO regulations, which helped this type of crowdfunding grow strongly, increasing also the risk of potential fraud. The idea is to create more adequate rules to protect investors from ICO scams. Moreover, Germany needs to improve its positions in terms of both regulation or taxation, according to Frank Schäffler, a parliamentarian and finance expert for the pro-business Free Democratic Party, quoted by Handelsblatt.

ICO infographic

According to Ingo Fiedler, an ICO expert, the country must establish a regulatory framework that supports legitimate ICOs and fights scams. However, some crypto specialists, like Austin Alexander from Kraken, believe that the crypto world is beyond the reach of government authorities and is impossible to regulate.

ICOs, where companies sell tokens that give no ownership or voting rights to raise funds for a Blockchain-based project, skyrocketed last year, and are believed to have collected a total of some USD 5 billion from investors. However, volatility and uncertainty are major issues in the largely unregulated and highly speculative sector.

EY (formerly Ernst & Young) has estimated that digital bandits have put a hand on more than USD 400 million from a total of USD 3.7 billion raised through ICOs. Accordingly, the US Securities and Exchange Commission (SEC) tightened its regulations on the sector, discouraging international tech firms from setting up in the country.

Meanwhile, Germany’s Federal Financial Supervisory Authority (BaFin) has more ICO friendly approach. According to Handelsblatt, it investigated 23 suspicious ICOs last year, found 13 cases of improper financial trading, and referred four cases to criminal prosecutors.