Preface

The development momentum of the Cryptocurrency field is rapid. As the fourth largest economy in the world, Germany has also shown strong potential in the field of Cryptocurrency. According to a study by Chainalysis, Germany is the second largest Cryptocurrency economy in Europe and has been recognized as one of the most friendly regulatory environments for Cryptocurrency in Europe.

Germany has always had a relatively open attitude towards Cryptocurrency and regards it as an important driving force for economic development, providing investors with a safer and more transparent investment environment. At the same time, the German government also encourages the banking industry and Financial Institutions to actively participate in the development of Cryptocurrency, providing corresponding supervision and support. These measures help attract more and more investors and companies to focus on the Cryptocurrency market in Germany.

1. Macroeconomic indicators of Germany

The Federal Republic of Germany, abbreviated as “Germany”, is the most innovative economy in the world. It consists of 16 federal states , with a land area of 357,000 square kilometers, 876 kilometers from north to south, and 640 kilometers from east to west. It extends from the northern North Sea and Baltic Sea to the southern Alps, with a mild climate and distinct seasons.

1.1 Europe’s largest economy

Germany is the fourth largest economy in the world and the largest economy in Europe. As of 2022, Germany’s per capita GDP is $43,032.14, which is equivalent to 341% of the world average. From 1970 to 2022, Germany’s average per capita GDP was $31,527.69, reaching a historical high of $43,284.60 in 2019 and a historical low of $17,894.30 in 1970. Germany’s average annual income is $53,390, making it one of the high-income countries. Even considering purchasing power parity, it is still one of the 20 richest countries in the world.

1.2 Inflation is slowly declining

In October 2023, Germany’s consumer price inflation rate was confirmed to be 3.8% year-on-year, a significant slowdown from the previous month’s 4.5%. The latest data hit the lowest level in more than two years, with food inflation falling to the lowest level since February 2022 (6.1%, 7.5% in September) and energy prices falling for the first time in nearly three years (-3.2%, 1.0% in September).

2. Characteristics of Cryptocurrency users in Germany

Germany has a population of about 83.2 million (data from Worldata.info 2023). According to data from TripleA and GWI Research, there are 3.49 million cryptocurrency users in Germany, accounting for about 4.19% of the total population. According to a survey by KuCoin, 49% of German cryptocurrency investors believe that digital currency can help them achieve long-term wealth accumulation plans. One-quarter of people believe that this asset class can serve as a store of value in the current economic turmoil.

2.1 High-income groups are more willing to invest in Cryptocurrency

Data shows that, broken down by income, the amount of cryptocurrency owned by high-income individuals is much higher. Among the surveyed Germans, 67% have an annual income of more than 800,000 euros, of which 44% have an annual income between 200,000 euros and 800,000 euros, at least twice that of other income groups.

2.2 Millennials are the primary users of Cryptocurrency

A survey shows that the majority of Cryptocurrency holders in Germany are between 25–44 years old (about 70%). Digital assets are usually an interesting thing for young people because they are more open to innovation. Generation Z (18–24 years old) accounts for only 12.82% of all Germans who are exposed to the Cryptocurrency market, while those aged 55 and above account for only 6.09%. This indicates that Cryptocurrency is mainly held by the millennial generation in Germany (1981–1996).

2.3 People prefer BTC over other Cryptocurrencies

BTC remains the most popular choice for German Cryptocurrency holders, with about 69.35% of respondents owning Bitcoin. Due to its wide application, ETH follows closely with 45.73%. Next are Ripple (XRP) with 21.86%, Tether (USDT) with 17.59%, and other Altcoins with 32.66%.

2.4 Cryptocurrency usage is high in e-commerce

In Germany, Cryptocurrency has been officially recognized as a legal means of payment, The German government also encourages businesses to accept Cryptocurrency as a payment method and provides corresponding tax breaks. Currently, people can use Bitcoin to buy apartments in Berlin, make holiday reservations, and pay for various trendy local restaurants.

According to a survey by TripleA, the entire retail industry is eagerly anticipating cryptocurrency payment services. Respondents have shown interest in all major categories such as entertainment, e-commerce, and luxury retail. Among them, the usage rate of cryptocurrency in e-commerce is the highest at 50.6%, followed by 35.9% in luxury retail and 29.2% in travel payments, and 32.6% in heavy asset purchases such as home and car purchases.

In addition, the wider adoption of Cryptocurrency payment methods by merchants can also generate a Network Effect, driving people to adopt Cryptocurrency faster. In the survey, 20.3% of respondents stated that they currently do not hold Cryptocurrency because merchants do not support it.

2.5 Looking forward to expanding further into cryptocurrency education

The majority (67.11%) of non-Cryptocurrency respondents in Germany said they were unable to own a Cryptocurrency due to a lack of relevant knowledge, indicating that there is still a lot of room for Cryptocurrency adoption with proper channelized education and awareness.

According to Statista, the number of users in the cryptocurrency market is expected to reach 19.06 million by 2027, and the user penetration rate is expected to reach 17.94% in 2023 and 22.87% in 2027.

3. Germany’s preference for CEX

In Germany, people can safely and efficiently obtain various cryptocurrencies through exchanges regulated by BaFin. (BaFinis the Federal Financial Supervisory Authority of Germany. BaFin regulates various financial entities and activities in Germany. BaFin’s main regulations and responsibilities include banking, insurance and securities regulation, securities, and consumer protection.)

3.1 Bitpanda, a CEX based in Berlin

Bitpandais a top cryptocurrency exchange with a license issued by the Federal Financial Supervisory Authority of Germany (BaFin). Its headquarters is located in Berlin and it provides a variety of services, including trading over 3,000 cryptocurrencies, stocks, ETFs, etc. In particular, it is one of the few exchanges in Europe that provides secure cryptocurrency investment services, especially in Austria, which enhances its significance to German investors. Raiffeisen Bank AG in Vienna recently announced that they will offer customers the opportunity to invest in Bitcoin starting from January 2024. Their designated custodian will be Bitpanda.

3.2 eToro, a highly admired CFD exchange

eToro is highly respected in Germany, especially for its Cryptocurrency Contracts for Difference (CFDs), which offer over 3,000 assets such as Cryptocurrencies, Stocks, Commodities, Indices, and ETFs. Its notable features include social trading options such as copy trading and virtual accounts for practice, as well as an attractive deposit rate of up to 5.3% per annum.

eToro is regulated by the Cyprus Securities and Exchange Commission (CySEC) and is a favored platform for German investors due to its user-friendly interface and cost-effective Euro (EUR) deposit methods, including SEPA, online banking, Sofort, Giropay, and debit cards. In addition, eToro stands out with its competitive price structure, characterized by zero prepaid commissions and highly competitive spreads between various assets.

3.3 Bybit, the leader in derivatives

Bybit, founded in 2018, has quickly become a leader in the field of cryptocurrency derivatives trading in Germany. The platform’s investment portfolio covers over 770 types of cryptoassets, and its competitive fees in the spot, futures, and options markets are widely recognized. Bybit’s special expertise in cryptocurrency futures trading has made it the main choice for cryptocurrency investors in Germany.

Bybit has taken a robust and global approach to regulatory compliance, holding a license in Dubai and recently obtaining authorization from the Federal Financial Supervisory Authority (BaFin) to operate within the European Union. In addition, Bybit is actively cooperating with the crypto asset market (MiCA) regulations proposed by the European Union authorities.

3.4 OKX, the most comprehensive cryptocurrency trading platform

OKX ranks fourth among cryptocurrency platforms for German investors and is highly recognized for its comprehensive trading capabilities. The platform has a portfolio of over 300 cryptoassets, including not only traditional spot trading, but also futures, options, and margin trading. It is worth noting that OKX’s wallet is very beneficial for DeFi enthusiasts, as it provides seamless connectivity with protocols such as AAVE and Uniswap to enhance staking returns.

OKX operates in the Seychelles Islands and complies with regulatory frameworks to ensure full accessibility in Germany. Its appeal lies in its appeal to institutional traders and those interested in DeFi, thanks to strong API support, first-class liquidity, and compatibility with web3 protocols.

3.5 Bitcoin.de, the oldest crypto trading platform in Germany

Bitcoin.de, headquartered in Germany, the famous Cryptocurrency exchange is one of the oldest and most mature Bitcoin trading platforms in Germany. Bitcoin.de pioneered a unique approach. It was the first exchange in the world to partner with Fidor Bank AG to facilitate Cryptocurrency trading directly through users’ bank accounts. The platform provides services in multiple languages, including German and English to meet the needs of different audiences.

Despite its commendable German roots and innovative features, Bitcoin.de still faces competition from emerging domestic platforms. Its main challenges include the older User Interface and the relatively limited choice of only eight cryptocurrencies. These factors may limit its appeal, especially for users who value modern interfaces and broader cryptoasset trading.

Trading Cryptocurrency in Germany offers a variety of payment options for investors, such as SEPA bank transfer, credit cards, Giropay, Sofort, and other ways to deposit euros (EUR), which makes buying, staking, and trading Cryptocurrency more standardized and convenient.

4. Web3 projects in Germany

4.1 Bitwala, the blockchain banking solution provider

Bitwalawas founded in October 2015 and is a blockchain banking service company based in Berlin. The company was founded by Jörg von Minckwitz, Jan Goslicki, and Benjamin P. Jones. Bitwala’s initial vision was to become a blockchain-based global Payment service provider. Compared with traditional services such as Western Union and Transferwise, Bitwala achieves differentiation by using digital currency to achieve faster and more economical transactions.

Bitwala’s services include SEPA and SWIFT remittances, allowing the exchange of Bitcoin or other tokens into more than 20 legal currencies in over 200 countries. However, in January 2018, due to compliance issues with its prepaid card provider WaveCrest Holdings LTD, Bitwala lost its VISA license and temporarily suspended its services. Despite this setback, Bitwala joined the European Fintech Alliance in August 2018 and repositioned itself.

In order to transform its services, Bitwala partnered with Berlin-based white-label bank SolarisBank and received 4 million euros in funding from venture capital firms Earlybird and Coparion in September 2018. This support prompted Bitwala to relaunch in November 2018, launching Europe’s first regulated blockchain banking solution. The solution allows users to manage Bitcoin and euro deposits in one place through a German bank account hosted by Solarisbank.

4.2 NERVE Global’s Peer-to-Peer Payment and Incentives

NERVE Globalwas founded in 2019, incubated by V_Incube8 (India) and invested by The Graph (San Francisco). It is a blockchain company dedicated to providing peer-to-peer payment and incentive plans based on blockchain for social media users. Their goal is to change the reward landscape for social media content creation and enable the community to exert greater influence on content creation.

Their platform allows users to collectively contribute cryptocurrency and associate it with proposals they want to see implemented by their favorite social media influencers. NERVE facilitates the creation of content-related bets processed on the blockchain. NERVE is an independent tool that seamlessly integrates with any social media platform and mainly runs on the Ethereum blockchain. The NERVE application is compatible with Windows, Android, and iOS devices.

4.3 Lisk, an application platform for seamless interaction with sidechains

Liskis an open-source Web3 application platform designed for seamless interoperability with sidechains. Its JavaScript SDK provides developers with a direct way to launch their own blockchain and be compatible with Lisk. The native cryptocurrency on the Lisk blockchain is the LSK token, which implements consensus through Delegated Proof of Stake.

The Lisk SDK is an open-source Software Development Kit that enables developers to create scalable Web3 applications using JavaScript. These applications have their own blockchain, offer almost unlimited customization features, and are compatible with the Lisk protocol by default.

The local utility token of the Lisk network is LSK, which can be used for various operations such as balance transfer, voting, and multi-signature registration. With the introduction of Lisk interoperability, other functions (such as registering blockchain on the network) will require the use of LSK tokens. For more detailed information, please refer to the official documentation of the Lisk SDK.

4.4 Molecule, a decentralized IP software platform

Moleculewas founded in Berlin in 2020 with funding support from Sora Ventures. It is a software platform aimed at decentralizing the development of intellectual property in the biotechnology industry. The company was co-founded by Paul Kohlhaas and Tyler Golato, and its headquarters is located in Schaffhausen, Switzerland.

Molecular, as a decentralized biotechnology protocol, has built a Web3 marketplace for research-related intellectual property ( IP-NFTs ). It provides a platform and scalable framework for biotechnology DAOs, builds connections between academia and biotechnology companies, and promotes rapid and convenient fundraising. This innovative system enables patients, researchers, and investor communities to actively participate in the direct management and ownership of research-related intellectual property.

IP-NFTs establish a groundbreaking connection between intellectual property (IP) and cryptocurrencies (especially non-fungible tokens (NFTs)). This innovation provides scientists with a new way to raise research funds and facilitates new transaction methods for their discoveries. By combining legal contracts such as sponsored research agreements and patent licenses with Ethereum smart contracts, IP-NFTs represent a significant advance in scientific protocols. These tokens digitize legal contracts, allowing them to reside within the secure realm of Ethereum smart contracts. This digital transformation enables seamless peer-to-peer transfer of IP-NFTs, promoting fair distribution of licensing and governance rights in the community, which in turn inspires collective intelligence and active participation in shaping the trajectory of scientific discoveries.

4.5 BitGo, the wallet service provider and WBTC custodian

BitGois a leading provider of secure and scalable solutions for the digital asset economy. Founded in 2013, the company pioneered multi-signature wallets and introduced TSS to enhance security. BitGo protects over 600 tokens on various blockchains and provides the most secure technology on the market. Initially focused on wallets, BitGo has expanded its services to regulated custody, lending, and comprehensive infrastructure solutions.

In 2018, BitGo launched BitGo Trust Company, which not only provides fully regulated cold storage, but also comes with a hot wallet solution. In 2020, BitGo Prime was launched, enabling customers to trade and borrow. BitGo’s products also include DeFi, staking, NFT wallets, and is the exclusive custodian of WBTC (packaged Bitcoin). BitGo’s business covers the world and is a leader in digital asset security, custody, and liquidity, serving more than 1,500 institutional clients in 50 countries. It is worth noting that, in terms of value, BitGo processes about 20% of the global Bitcoin transaction value.

5. Germany’s Regulatory Policy

In 2014, Germany became the first country to accept Bitcoin as a currency, highlighting Germany’s open attitude. Similarly, members of the board of directors of the German central bank also called for effective and appropriate regulation of Crypto and tokens. Several decision-makers from the German central bank participated in discussions involving the entire European Union region, including incentivizing the Crypto industry through the European Block Chain Partnership.

5.1 Germany lists Crypto as a financial instrument

According to Article 10 of the German Banking Law, encrypted assets are also financial instruments. In Article 1 (11), sentence 4 of the German Banking Law, encrypted assets are defined as digital representations of value that are neither published nor guaranteed by the central bank or public institutions, and are not considered legal tender, but are accepted by natural or legal persons as a means of exchange or payment or for investment purposes based on agreements or actual practices, and can be transferred, stored, and traded electronically, with the legal status of currency or money.

Germany’s law regards Cryptocurrency as an exchange tool equivalent to traditional legal tender, providing legal protection for its application in various fields. In addition, the German government encourages companies to accept Crypto as a payment method and provides corresponding tax reduction policies. These measures have laid a solid foundation for the promotion and popularization of Crypto in Germany.

5.2 About preventing money laundering and terrorist financing

In Germany, every Crypto company is required by law to have internal operating policies in place to detect transactions related to money laundering and terrorist financing. These policies should operate in a way that not only protects the reputation and financial strength of the Crypto company, but also guarantees the integrity and stability of the entire Financial Market. BaFin’s mission is to ensure that all regulated businesses comply with the rules set out in the following legislation:

• Anti Money Laundering Act
• Banking Act
• Insurance Supervision Law
• Payment Services Supervision Law
• Investment Guidelines

According to Article 4 of the Anti Money Laundering Law, responsible companies must have risk management functions based on business type and scope. It includes the Risk Analysis process stipulated in Article 5 of the Anti Money Laundering Law and internal risk measures stipulated in Article 6 of the Anti Money Laundering Law. These are the basic rules of risk-based methods related to money laundering and terrorist financing.

Cryptocurrency companies must also comply with customer due diligence rules. In addition to identifying customers, those acting on behalf of customers, and beneficiaries or beneficial owners, it is also important to check whether they are political figures, relatives of political figures, or known close partners. In addition, the purpose and type of business relationship must be clarified every time it is not completely clear.

Responsible enterprises such as Cryptocurrency companies must ensure timely updating of relevant documents and information in accordance with established procedures. These measures can trace cash flows and identify suspicious business transactions. Therefore, responsible enterprises need to investigate such transactions by obtaining more information. Once criminal transactions are discovered, they must immediately notify the financial intelligence department of the General Administration of Customs.

5.3 Crypto license in Germany

Providing encrypted products and services in Germany on a commercial basis or when establishing a commercial enterprise requires written authorization from BaFin, regardless of the legal form of the business (sole proprietorship, partnership, limited liability, or other forms). If such business is conducted in Germany, authorization is only required under Article 32 (1) of the Germany Banking Act.

All companies planning to provide Cryptocurrency custody services in Germany apply for BaFin authorization. BaFin will consider the application in accordance with the “Germany Act Implementing the Fourth European Union Anti Money Laundering Directive Amendment Directive” (Germany Act Implementing the European Union Anti Money Laundering Directive Amendment Directive) and the German Banking Act, where crypto custody business is considered a new Financial Services. Key requirements for Crypto custodians include an initial capital of at least 125,000 euros, a reliable owner, a reliable and qualified company managing director, and a feasible business plan.

Even if the company conducts its own business as a member or participant in an organized market or multilateral trading system, or has direct electronic access to trading venues, or owns commodity derivatives, emission quotas, or emission quota derivatives, the same applies.

5.4 Tax exemption after holding Crypto for one year

The tax treatment of cryptocurrency depends on its designation as “private currency”. It is worth noting that if the asset is held for more than one year, the proceeds from the sale of cryptocurrency are tax-exempt. In contrast, profits from the sale within one year of purchase are subject to income tax, with tax rates ranging from 14% to 42%. In addition, profits of up to 600 euros per year are tax-exempt. The Federal Central Tax Office (BZSt) is responsible for supervising these tax regulations. For accurate guidance and compliance with the latest regulations, it is recommended to consult a qualified tax professional.

In Germany, companies that use cryptocurrency for transactions must record their gains and losses in euros, and they also need to pay Value Added Tax (VAT) like traditional currencies. For example, if a company accepts Bitcoin as a payment method for goods or services, it must convert the transaction value into euros and pay Value Added Tax on that amount.

The German system effectively balances simplicity and fairness, encouraging long-term investment in cryptocurrency while still taxing short-term gains. In addition, by treating cryptocurrency like other forms of private currency, the German government avoids creating a separate and complex tax structure for digital currency.

Joana Cotar, a member of the Bundestag (Parliament) in Germany, expressed support for recognizing Bitcoin as legal tender in Germany. She emphasized the need for a balanced regulatory environment that addresses issues related to money laundering and tax evasion without stifling innovation. Cotar envisions that in the future Bitcoin will be used for taxation and fees, and for mining to stabilize the power grid. If successful, Germany’s legalization of Bitcoin may affect other countries and may affect the value of Bitcoin by increasing demand and legitimacy.

6. Summary

According to a study by Chainalysis, Germany is the second largest cryptocurrency economy in Europe, and a 2022 CoinCub ranking even ranked Germany as the most cryptocurrency-friendly country in the world.

The implementation of Cryptocurrency regulatory rules in Germany helps to decentralize the Cryptocurrency market to a certain extent, thus better protecting the security and privacy of digital assets. In addition, transparent regulatory rules can increase market liquidity and allow more investors to enter the market with confidence. However, regulatory rules will also bring great challenges to this market. As investors, we need to carefully study and choose in order to better protect our interests.

Currently, Germany has made breakthrough progress in research and development of blockchain technology and cryptocurrency. The development and prosperity of the German Cryptocurrency market will attract more international fintech companies to enter the German market, driving employment and economic growth. Secondly, the application of Crypto will improve the efficiency and security of Germany’s financial system, bring more investment and innovation vitality to Germany’s Financial Market, and further consolidate Germany’s global leadership position in the field of technological innovation.

With the further development of German government regulations, the rise of financial technology, the legal status of Cryptocurrency, and Germany’s technological innovation capabilities, the rapid development of the German Cryptocurrency market will be jointly promoted. As an important part of the global economy, Germany will have a profound impact on the global Crypto market. We have reason to believe that Germany’s future in the Crypto field will be even more brilliant.

Note: All of the above opinions are not investment advice. If there are any inappropriate points, please feel free to leave a message to supplement or correct them.