Crypto Custody Regulations in Germany: What Businesses Must Know in 2026

Germany doesn’t just allow crypto custody-it controls it. If you’re holding digital assets for clients in Germany, you’re not just running a tech business. You’re operating under one of the strictest, most detailed financial regulatory systems in Europe. And if you think it’s just about securing private keys, you’re already behind.

Why Germany’s Rules Are Different

Most countries treat crypto like a wild west-loose rules, fast approvals, and minimal oversight. Germany? It’s more like a courtroom with a stack of legal briefs. Since 2020, Germany has required every company storing crypto for others to get a license from BaFin, the Federal Financial Supervisory Authority. That made it the first EU country to do so. But now, it’s not just about German law anymore. The EU’s MiCAR regulation kicked in on January 1, 2025, and Germany folded it into its own Banking Act (KWG). That means two sets of rules now overlap-and both must be followed.

It’s not just about being compliant. It’s about survival. If you’re a crypto startup trying to offer custody in Germany without a license, BaFin doesn’t just shut you down. It forces you to wind up operations, as happened with Ethena GmbH in June 2025. Token holders were given until August 6 to redeem their assets through a court-appointed rep. No warning. No grace period. Just a legal shutdown.

What Exactly Counts as Custody?

You might think custody means storing keys. But Germany breaks it down into three distinct activities, and any one of them triggers licensing:

• Pure custody: Holding private keys for clients
• Administration: Managing transactions, signing, or scheduling transfers
• Safeguarding: Protecting assets from theft, loss, or unauthorized access

Even if you’re just offering a wallet that lets users sign transactions from their phone, you’re doing administration. That’s a license requirement. No exceptions. No gray area.

And here’s the twist: not all crypto is treated the same. Bitcoin and Ether fall under MiCAR. But if your token is even slightly like a stock-say, it pays dividends or represents ownership in a company-it’s classified as a security under MiFID II. That means you need a full banking license, not just a crypto custody license. That distinction separates utility tokens from security tokens, and it’s legally enforced. One misclassification, and you’re out of compliance.

The Licensing Process: 47 Documents and 7 Months

Getting licensed isn’t a form you fill out online. It’s a multi-month, six-figure ordeal. BaFin requires 47 separate documents, including:

• Detailed business plan with revenue projections for five years
• Organizational chart showing three lines of defense (compliance, risk, operations)
• IT security architecture diagrams
• Proof of €125,000 minimum capital (up to €730,000 if you offer multiple services)
• CVs and background checks for all senior managers
• Proof of cybersecurity certifications (EAL 4+ for hardware wallets)
• Quarterly penetration test reports from third-party auditors

The average processing time? 7.2 months. That’s not a typo. Some firms wait over a year. And even after approval, you’re not done. You have 30 days to complete internal compliance training and 60 days to submit your first regulatory report. Miss a deadline? Your license can be suspended.

And here’s the kicker: you need at least two senior managers with “fitness and propriety” certification. There are only 312 certified compliance officers in all of Germany for 87 licensed firms. That’s a shortage. And it’s driving up salaries-some firms are paying €180,000+ to hire one.

Technical Requirements: No Room for Compromise

If you think your existing wallet software is good enough, think again. Germany demands:

• 95% of assets stored in cold storage (offline)
• Multi-signature wallets with at least 3-of-5 key holders
• Biometric access controls for physical vaults
• Business continuity plans that can handle 72+ hours of disruption
• Transaction records kept for five years
• Integration with DORA (Digital Operational Resilience Act) standards

Implementation costs? Between €500,000 and over €2 million. Most startups can’t afford this. That’s why 63% of DAX 30 companies use licensed German custody providers-but only 27% of crypto-native firms have made it through the process.

Who’s Winning and Who’s Losing

The market is split. On one side: banks. Deutsche Bank, Commerzbank, and DZ Bank control 58% of all assets under custody. Why? Because they already had MiFID II licenses. Under MiCAR Article 91(2), they got a fast-track: 3 months instead of 9. They didn’t need to rebuild their compliance teams. They just added crypto.

On the other side: crypto-native firms. Coinbase Custody and Finoa hold 27% combined. But even they spent over €250,000 on compliance in 2024, according to a Blockchain Bundesverband survey. That’s 43% higher than the EU average. Many small players simply gave up. Reddit threads from German founders show 68% calling the process “excessively bureaucratic.”

But here’s what they don’t complain about: security. Trustpilot reviews for licensed German custody providers average 4.3 out of 5. The top comment? “I know my assets are truly segregated. No mixing with the company’s funds.” That’s the whole point of Germany’s rules. Client assets must be legally and physically separated from the custodian’s balance sheet-even in bankruptcy.

What’s Coming in 2026 and Beyond

The rules aren’t frozen. Two major changes are coming:

• DAC 8 reporting: Starting January 1, 2026, custody providers must report every crypto transaction to German tax authorities. This is part of the OECD’s global Crypto-Asset Reporting Framework. You’ll need new software interfaces by Q4 2025.
• Civil securities law revision: By mid-2026, Germany plans to redefine what counts as a security under civil law. Right now, only tokens that meet strict financial criteria are treated as securities. The new draft could expand that to 70-80% of security tokens. That means custody providers will need full banking licenses, not just crypto custody licenses. It’s a massive shift.

And don’t forget taxes. Since March 2025, active staking (like running a validator node) is taxed as commercial income. Passive staking (like earning interest from a platform) is treated as capital gains. The distinction matters-and you’re responsible for tracking it.

Is Germany the Best Place for Crypto Custody?

Compared to Switzerland? Slower. France? More expensive. Malta? Less secure. Germany’s system is complex, costly, and slow. But it’s also the most predictable. If you’re an institutional investor, a bank, or a fund with deep pockets, Germany gives you legal certainty. Your assets won’t vanish if the custodian fails. You’ll get them back.

But if you’re a startup with $200,000 and a team of three? You’ll either need serious funding, or you’ll need to look elsewhere. Germany doesn’t welcome small players. It demands scale, structure, and security. And it’s willing to wait years to get it right.

As of June 30, 2025, €48.7 billion in crypto assets were held under licensed custody in Germany. That’s up 28% from last year. The money is coming. The infrastructure is building. And the rules? They’re not going away. They’re getting tighter.