Bitcoin are NOT Financial Instruments
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Partner
Germany
As co-head of the global Finance & Financial Regulation Practice Groups and head of the German Finance & Financial Regulation Practice Group, I advise on national and international finance and capital markets law as well as on commercial and corporate law. I am also a member of the international steering group of our Financial Services Sector Group.
Partner
Germany
As partner in our Finance & Financial Regulation Group in Frankfurt, I advise our national and international clients on banking regulatory issues and finance law.
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Berlin’s Superior Court of Justice (Kammergericht), on September 25th 2018, reached a notable decision: Bitcoin does not qualify as Units of Account (Rechnungseiheiten). Under this decision, Bitcoin, and the similarly functioning cryptocurrencies such as Etherum or Ripple, do not constitute a financial instrument regulated under the German Banking Act (Kreditwesengesetz). The verdict was reached following criminal proceedings regarding the operation of an unregulated Bitcoin trading platform. Read our critical assessment of the decision here.
The market’s reaction was, understandably, one of surprise. BaFin’s administrative practice has remained consistent for years resulting in the respective assessment to be well established and accepted throughout Germany. There was no notable dispute in professional legal literature and practice. Even usually critical voices in literature bowed to BaFin’s opinion. Following the court’s decision in Berlin, a statement was eagerly anticipated – Will BaFin adopt a new administrative practice in reaction to the decision? What about new publications, explanatory notes etc.?
After some suspense, BaFin president Felix Hufeld has now spoken in an interview about the verdict from Berlin. He does, in principal, acknowledge the court’s assessment in this particular case. Nevertheless he confirmed BaFin’s administrative practice to rate Bitcoin as Units of Account will remain unchanged in light of the decision. With support from the regulatory environment, BaFin firmly believes that the classification of cryptocurrencies as units of Account is fundamentally necessary and correct. The regulatory requirements fall under the competency of BaFin and cannot be nullified, repealed or revised through a criminal verdict.
A future impact on FinTechs, ICOs and trading platforms resulting from the difference of opinion between the court and BaFin remains to be seen. For now, nothing changes for market participants, yet the decision won’t make business easier, either. A latent uncertainty remains for the industry until the issue is settled for good. It may very well be the legislator’s responsibility to provide clarity in due course.
