Local Lenders Set to Supercharge Crypto Trading in Germany

The cryptocurrency market in Germany is expected to gain significant momentum in the coming months as millions of people will soon be able to trade virtual currencies directly through their local banks, without having to go through specialized third-party platforms.

Both cooperative banks and savings banks, which typically do bread-and-butter business with households and companies in their local communities, are in the process of rolling out their own crypto trading services to retail clients.

With the entry of these two giant banking groups, which collectively have tens of millions of customers, crypto trading “is now reaching a broader audience,” said Julian Schmeing, partner at ZEB, a management consultancy specializing in the financial sector. “Cryptocurrencies are no longer a niche topic.”

The mainstreaming of crypto wasn’t an inevitability in Germany. The country is famously fiscally conservative, as evidenced by its debt brake, which prevented the government from running large deficits until it was loosened last year. More people rent than own homes, and until the pandemic, credit cards were viewed with suspicion in some parts of the country. Crypto, by contrast, is notoriously volatile – which is why the country’s savings banks were initially reluctant to enter the space.

Just four years ago, the banks declined to provide a crypto trading platform to retail clients, citing “incalculable risks.” Then, in the face of rising customer demand, they had a change of heart.

Some of Germany’s almost 650 cooperative banks already offer a crypto platform, developed by DZ Bank, which facilitates trading in Bitcoin, Ethereum, Litecoin, and Cardano. For the country’s roughly 340 savings banks, DekaBank is developing a product that’s scheduled to launch later this year, and which will be rolled out in phases.

In all cases, each local bank will be able to opt into the service. Early interest appears strong. “We expect that a significant three-figure number of banks will offer the product in the future,” said Markus Bärenfänger, a product specialist at DZ Bank.

While a survey by crypto infrastructure company Boerse Stuttgart Digitalfound that only a quarter of respondents in Germany say they have invested in cryptocurrencies – compared to 24% for Italy and 23% for France – that could change as trading becomes easier. The same survey reported that Germans trust their primary bank more than twice as much as specialized crypto-trading platforms, at about 38% to 19%.

Volksbank Raiffeisenbank Würzburg was among the first cooperative banks to offer cryptocurrency trading. Board member Claus Reder said that several hundred customers are using the new product.

“Now, trading takes place in a familiar environment,” he said. ”That gives the trading service a certain credibility.”

Whether regional banks will ultimately profit from crypto trading remains to be seen. Far more important, some say, is offering the service in order to retain and attract customers.

“If a local bank doesn’t offer cryptocurrency trading, it loses relevance in certain segments of the market, for example, among young or tech-savvy customers,” said Ralf Kölbach, who heads cooperative lender Westerwald Bank, which recently launched crypto trading.

The sector’s about-face has drawn criticism from industry experts. “It is concerning that the floodgates to the cryptocurrency market are now being opened by savings and cooperative banks,” said Co-Pierre Georg, professor at the Frankfurt School of Finance & Management, adding that their traditional customers “probably don’t fully grasp the risks of cryptocurrencies.”

Even savings banks lobby group DSGV has warned that crypto trading is intended for self-directed investors, calling it a “highly speculative form of investment with the risk of total loss.”

For boosters, however, there’s an element of FOMO to not getting onboard. “I expect cryptocurrencies to become a completely normal asset class, alongside stocks, bonds, and private market investments,” said Reder, caveating that these holdings should not replace traditional assets.

Kölbach, moreover, sees no significant reputational risks for his lender. “Life and its risks cannot be fully insured. Our customers decide for themselves,” he said.