BaFin Cryptocurrency Oversight and Compliance: What Businesses Must Know in 2025

Germany doesn’t ban cryptocurrency. It regulates it. And if you’re running a crypto business in or targeting German customers, BaFin is the authority you can’t ignore. Unlike places where crypto operates in legal gray zones, Germany has built a clear, enforceable system - one that’s now fully aligned with the EU’s Markets in Crypto-Assets Regulation (MiCAR). This isn’t about stopping innovation. It’s about making sure it’s safe, transparent, and accountable.

What BaFin Actually Controls

BaFin, short for Bundesanstalt für Finanzdienstleistungsaufsicht, is Germany’s federal financial supervisor. It doesn’t just watch banks - it oversees every crypto service provider operating in the country. That includes exchanges, custody providers, trading platforms, and even firms issuing new tokens. Under the German Banking Act (KWG), crypto assets like Bitcoin, stablecoins, and security tokens are treated as financial instruments. That means if you’re offering services tied to them, you need BaFin’s approval.

You can’t just start a crypto exchange and hope for the best. You need a license. The same goes for crypto custody - storing digital assets for others. That’s now a standalone regulated activity. Since 2020, over 150 companies have applied for custody licenses. More than 90 got approved by early 2025. That’s not a backlog. That’s a functioning system.

What You Must Do to Get Licensed

Getting licensed isn’t a formality. It’s a full audit of your business. BaFin looks at five things:

• Organizational structure - Do you have clear roles? Is compliance built into your operations?
• Financial resources - You need enough capital to cover risks. For custody services, minimum equity is €125,000.
• IT security - Cold storage, multi-signature wallets, penetration testing. You must prove your systems can’t be hacked easily.
• AML/KYC procedures - You must verify every customer’s identity and track every transaction.
• White papers - If you’re launching a new token, you must submit a detailed document explaining the project, risks, and tokenomics to BaFin before going public.

The process used to take over a year. Now, thanks to reforms under the Finanzmarktdigitalisierungsgesetz (FinmadiG) and Kryptomärkte-Aufsichtsgesetz (KMAG), decisions are coming in under six months for well-prepared applicants. BaFin has tightened its review process - but also its responsiveness.

The Travel Rule: Tracking Every Crypto Transfer

One of the strictest rules is the crypto transfer regulation (KryptoWTransferV). It enforces the Financial Action Task Force’s (FATF) “travel rule.” That means every time someone sends €1,000 or more in crypto, you must collect and send this data:

• Name and address of the sender
• Account or wallet ID of the sender
• Name and address of the recipient
• Account or wallet ID of the recipient

This applies to exchanges, wallets, and even peer-to-peer platforms if they act as intermediaries. You can’t just say, “We don’t know who’s on the other side.” BaFin expects you to know. And you must store this data for at least five years.

If you’re using a third-party payment processor to accept crypto from customers - and they convert it to euros - you’re still liable. If that processor isn’t licensed, BaFin can fine you. Many small businesses learned this the hard way in 2024.

When You Don’t Need a License

Not every crypto activity triggers regulation. If you’re a shop owner who accepts Bitcoin as payment for a product, you’re fine. You’re not offering a financial service. You’re selling goods.

But here’s the trap: if you start buying crypto regularly to resell it - even just a few times a month - and you advertise it online, BaFin may classify you as a proprietary trader under Section 1(1a) No. 4 of the KWG. That requires a license.

Same with mining pools. If you run a pool that collects fees from miners and distributes rewards, you’re acting like a financial intermediary. That’s regulated. Individual miners? Not regulated. But if you’re pooling resources and managing payouts, you’re crossing into financial services territory.

What Happened in 2025: Enforcement in Action

BaFin isn’t just handing out licenses. It’s shutting down bad actors.

On June 25, 2025, BaFin ordered Ethena GmbH to stop operating its USDe stablecoin in Germany. Why? The project didn’t meet MiCAR’s transparency or reserve requirements. Token holders had until August 6, 2025, to redeem their tokens through a court-appointed administrator. No refunds. No delays. Just a clean shutdown.

That wasn’t an isolated case. In February 2025, BaFin issued warnings to five unlicensed DeFi platforms that were offering yield-generating services to German users. These platforms claimed they were “decentralized” and therefore outside regulation. BaFin’s response: “If you market to Germans, you’re subject to German law.”

Meanwhile, the Federal Ministry of Finance updated tax rules. Crypto is now officially called “crypto assets,” not “virtual currencies.” Staking rewards are treated differently depending on whether they’re active (you’re running a node) or passive (you’re delegating). DeFi income must now be reported with transaction logs and daily market valuations. No more guessing.

Who’s Targeted - Even If You’re Not in Germany

You don’t have to be based in Germany to fall under BaFin’s reach. If you’re a U.S.-based exchange and you actively target German customers - through German-language websites, ads on Facebook targeting Berlin, or support in German - BaFin considers you operating in Germany.

The rule is simple: if you’re trying to attract German users, you need a license. Passive access - like a German citizen stumbling on your website - doesn’t count. But if you’re marketing to them? That’s a red flag.

This is why many non-EU crypto firms now avoid the German market entirely. The cost and complexity of compliance outweigh the potential customer base. But for those who stay, the payoff is legitimacy. BaFin-approved firms are trusted by banks, institutional investors, and even traditional financial partners.

The Bigger Picture: Why Germany Leads in Crypto Regulation

Germany’s approach isn’t about control. It’s about clarity. Other countries have bans, delays, or vague guidelines. Germany says: “Here’s what’s allowed. Here’s how to do it legally. Here’s what happens if you don’t.”

That’s why major players like Coinbase and Bitpanda chose Frankfurt as their EU hub. They didn’t pick Luxembourg or Ireland. They picked Germany because the rules are predictable. The enforcement is consistent. And the penalties are clear.

MiCAR, which fully took effect in June 2025, didn’t replace German law - it absorbed it. BaFin’s existing rules became the foundation. That’s rare in the EU. Most countries had to overhaul their systems. Germany already had one.

What You Should Do Now

If you’re running a crypto business:

1. Map out every service you offer. Are you custody, trading, staking, or issuing tokens?
2. Check if any of those fall under KWG’s definition of financial services.
3. If yes, start your BaFin application. The forms are public on their website.
4. Get your IT security audit done. Use certified providers.
5. Implement full AML/KYC with travel rule compliance. Don’t wait until you’re asked.
6. Stop using unlicensed payment processors to convert crypto to euros.

If you’re just a user: you’re not regulated. But choose platforms with BaFin licenses. It’s the only guarantee your funds are protected under German law.

What’s Next

By the end of 2025, all existing crypto licenses under German law will expire. Companies must reapply under MiCAR. BaFin has said it will not extend deadlines. No more grandfathering. If you haven’t applied by December 31, 2025, you’re operating illegally.

The message is clear: Germany is open for crypto - but only if you play by the rules.