German banks slowly adopt crypto, mostly for institutional investors

Doubts regarding crypto remain among German banks, but there is a growing concern about missing out on a potentially game-changing development.

For a long time, German banks largely neglected the cryptocurrency industry, considering it too speculative, too risky and too unregulated.

Foreign institutions, neobrokers, and crypto fintech companies such as Bitwala, Trade Republic, Bison App and Bitpanda were primarily responsible for providing services like trading and custody, business account management, tokenization, card issuing and ATMs.

Trading cryptocurrencies directly at a German bank branch is not possible. Not even the big online banks like Comdirect, Deutsche Kreditbank or ING allow their customers to trade cryptocurrencies directly via a broker. The only way for customers of these banks to invest in Bitcoin (BTC) and other coins is through certificates replicating the cryptocurrencies.

But German banks’ reluctance to embrace crypto is slowly ending, with more institutions working on solutions to give customers access to cryptocurrencies.

Bitcoin soon at 1,200 German banks?

Deutsche WertpapierServiceBank (Dwpbank) took an important step in March 2023 with the launch of its wpNex crypto trading platform, which gives 1,200 banks and savings banks in Germany access to the digital asset industry.

However, it remains to be seen how well affiliate banks will receive the offering and whether it will live up to expectations. “In addition to our pilot customer MLP Banking, we are also in close contact with DZ Bank [Germany’s second-largest bank by assets held] about our offer,” Heiko Beck, Dwpbank CEO, told Cointelegraph, adding that there are “a few other interested parties from the customer base,” without disclosing who.

Large commercial banks serve institutional clients

Asset management group DWS, which is majority-owned by Deutsche Bank, is also looking for a way into the crypto business by giving investors access to digital assets. In April, DWS announced it was working on exchange-traded products of cryptocurrencies in the European market with Galaxy Digital. Additionally, DWS intends to use the partnership to develop other digital solutions that will give investors access to blockchain applications and digital assets.

In an April LinkedIn post, DWS CEO Stefan Hoops said, “Without a doubt, the majority of crypto coins are between worthless and fraudulent,” adding, “Nevertheless, we believe in the future of a tokenized economy which will substantially disrupt the current market structure.”

The move follows the belief that investor interest in digital assets is unabated, according to Hoops, who added that “we should develop safe access to digital assets rather than display schadenfreude when our clients lose money dealing with dodgy [entities].”

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Although this latest cooperation between DWS and Galaxy Digital shows that one of Germany’s largest traditional financial institutions is interested in crypto assets, this offering is only aimed at institutional investors — such as companies and foundations — and not retail investors.

Other traditional banks, including Commerzbank and DekaBank, are seeking crypto custody licenses from Germany’s financial watchdog, the Federal Financial Supervisory Authority (BaFin). Their plans are also geared toward institutional clients and do not necessarily include well-known cryptocurrencies. DekaBank, for example, is already working on digital securities with its own blockchain technology and plans to launch a tokenization platform by 2024. However, the German Savings Banks Association, of which DekaBank is a member, decided last year not to offer cryptocurrencies to retail customers.

Like Commerzbank, Deutsche Bank focuses on a crypto custody solution for large institutional clients. This means that pension or investment funds will be able to store their crypto at Deutsche Bank in the future. However, the bank will not offer crypto products or services anytime soon for corporate or private clients.

Cooperative banks offer few crypto services for retail clients

For a global bank like Deutsche Bank, it is difficult to launch a digital asset offering due to the different regulatory jurisdictions it operates in. Regional banks, such as savings banks or small to mid-sized cooperatively organized financial institutions like volksbanken and raiffaisenbanken, have more freedom. They are locally based and have a simpler business model, mainly mobilizing deposits and lending them to local businesses and households.

For example, the National Association of German Cooperative Banks is working on an offer for crypto trading and custody for cooperative banks so they do not close themselves to market demand, even if cryptocurrencies are volatile investment products. Whether volksbanken will offer customers crypto trading is a decision for the institutions, which are independent legal entities.

Some volksbanks already offer crypto services. In partnership with Germany’s second-largest stock exchange, Boerse Stuttgart, Volksbank Kurpfalz started offering its customers cryptocurrency trading in April 2022. 

Customers have been able to buy Bitcoin via an online platform of Volksbank Bayern Mitte since the spring of 2022. There is also a Bitcoin ATM at the bank’s headquarters in Ingolstadt, and it has been informing its customers about buying and selling Bitcoin since the beginning of 2022.

The Saxony-based Volksbank Mittweida also contributes to crypto adoption in Germany. The bank specializes in initial coin offerings, security token offerings, crypto consulting, crypto IT service providers and bank accounts for crypto companies.

Although locally based, these initiatives by local banks are steps toward broader crypto adoption.

Small family-owned private banks offer numerous crypto services

Besides the big banks, there are some 200 small private, closely held and often family-owned banks. Most of these banks are specialized in some way. Some are regional banks, some focus on certain industries, while others offer a narrow range of services.

But these private banks have recently made a name for themselves in the local crypto scene. Bankhaus Scheich, for example, specializes in cryptocurrency trading and is known for its over-the-counter crypto trading desk.

Munich-based Bankhaus von der Heydt — one of the oldest banks in Europe, founded in 1754 — also offers several crypto services. In particular, the bank focuses on the custody of crypto assets and the tokenization of investments.

Frankfurt-based private bank Hauck Aufhäuser Lampe Privatbank launched one of the first crypto funds in early 2021, which was liquidated after about a year. A new crypto fund followed in June 2022. In addition to the fund business, the bank acquired the licensed crypto custodian Kapilendo, adding crypto asset custody to its product range.

Another example is Fidor Bank, which offers express trading in cryptocurrencies, where assets can be bought or sold in real-time via crypto exchanges Bitcoin Deutschland and Kraken.

Hamburg-based Sutor Bank is also starting to make its mark on the crypto scene, partnering with startups such as spot9 to roll out crypto ATMs in Germany. The bank also offers business accounts for crypto companies.

Although these locally rooted small or medium-sized banks can afford to be more flexible in responding to investors’ needs, they represent only a small number of the more than 1,000 cooperative and private banks that offer crypto services to institutional and retail investors.

​​Neobanks and crypto fintech companies attract underserved customers

While large German banks offer crypto services primarily for institutional investors and still have little to offer retail investors, neobanks like N26, and online brokers, such as Trade Republic or Revolut, are trying to fill this niche by responding to customer needs more quickly than traditional banks. Private customers of these banking alternatives can trade cryptocurrencies via different apps, benefitting from ease of use, simplicity and a wide variety of offers that traditional banks do not always have.

Crypto companies like Bison App, the Boerse Stuttgart Digital Exchange, or cryptocurrency exchange Bitpanda not only offer a comprehensive crypto offering in Germany, but are increasingly impacting traditional banks’ business areas. Bison, for example, has already made a name for itself as a crypto app and is now integrating fully regulated securities trading. In the long term, it plans to add products such as tokenized art, real estate and cars.

More crypto services expected from traditional banks

When it comes to crypto, a lot is happening in German banks; however, it’s far from a revolution. Private customers, in particular, will have longer to wait for crypto services from large German banks.

Nonetheless, most traditional financial services providers can no longer avoid cryptocurrencies, says Dwpbank’s Beck.

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The CEO said not all crypto products would be adopted directly from the crypto market, adding that it takes time for new asset classes like crypto to be adopted in highly regulated financial institutions. He commented that, until 2021, when BaFin introduced a crypto license, Germany “lacked the necessary regulatory framework to address the topic concretely. In addition, customer and consumer demand is only gradually developing.”

However, “The demand for cryptocurrencies is growing,” he said, “And especially after the MiCA regulation comes into force, the Volksbanken, savings banks, and other traditional financial institutions will react to it in order to gain new customers and not lose their old ones.”

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