Germany stands out in the global crypto landscape as a country with a relatively mature and structured regulatory approach to digital assets. While many jurisdictions still debate how to treat cryptocurrencies, Germany has implemented clear legal frameworks that recognize crypto as part of the financial ecosystem. This blog post explores the main laws and regulators shaping cryptocurrency use in Germany.

Legal Classification of Crypto in Germany

In Germany, Bitcoin and other cryptocurrencies are legally considered financial instruments under the German Banking Act (Kreditwesengesetz or KWG). Specifically, they are classified as units of account, which puts them in the same category as traditional foreign currencies and other financial instruments.

This classification means that any business dealing with cryptocurrencies—such as exchanges, custodians, or brokers—must obtain authorization from Germany’s main financial regulator.

Key Regulatory Body: BaFin

Germany’s Federal Financial Supervisory Authority (BaFin) plays a central role in overseeing the crypto space. Companies involved in cryptocurrency activities must:

• Apply for a license from BaFin

• Demonstrate proper anti-money laundering (AML) and know-your-customer (KYC) practices

• Ensure IT security and financial stability standards are met

BaFin has issued clear guidance on initial coin offerings (ICOs), stating that token offerings may fall under securities regulation depending on their structure.

Crypto Custody License

Since January 2020, under the implementation of the Fifth EU Anti-Money Laundering Directive (AMLD5), Germany has required crypto custody providers to obtain a specific “crypto custody license.” This made Germany one of the first countries in Europe to directly regulate crypto custody as a financial service.

Companies must:

• Maintain a physical presence in Germany

• Register with BaFin

• Comply with strict regulatory standards

Taxation of Cryptocurrency

Crypto is treated as private money for tax purposes. If a person holds cryptocurrency for more than one year before selling, the profit is tax-free. However, if sold within one year, any gains over €600 are taxed as capital gains. For businesses, crypto profits are treated like any other revenue and taxed accordingly.

Germany and the MiCA Regulation

Germany is also actively aligning with the EU’s Markets in Crypto-Assets (MiCA) regulation, expected to come into effect across the EU in 2025. MiCA will harmonize crypto laws across member states, but Germany’s existing structure already meets or exceeds many of MiCA’s requirements.

Final Thoughts

Germany offers one of the clearest and most business-friendly regulatory environments for crypto in Europe. By combining legal recognition, strict licensing, and investor protection, it provides a roadmap that other countries may follow. While regulation can seem like a barrier, in Germany’s case, it has become a foundation for long-term crypto innovation and stability.