Crypto Custody Regulations in Germany: What You Need to Know in 2025

Germany doesn’t just allow crypto custody - it controls it. If you’re holding or managing digital assets in Europe, Germany’s rules are among the strictest, most detailed, and most consequential in the region. Unlike countries that take a hands-off approach or offer quick registration, Germany demands licenses, audits, segregated wallets, and years of documentation. And starting January 1, 2025, those rules got even tighter under MiCAR - the EU’s new crypto law - layered on top of Germany’s own Banking Act.

Why Germany’s Rules Matter

Germany isn’t just another EU country. It’s the largest economy in Europe, home to major banks, institutional investors, and industrial giants. When Germany sets a standard, the whole market pays attention. That’s why 63% of DAX 30 companies now use licensed German custody providers - not because they love red tape, but because they trust it. If your crypto assets are stored in Germany, they’re held under some of the most rigorous protections in the world.

But here’s the catch: if you’re a small crypto startup or a non-EU firm trying to enter the market, the path is steep. The licensing process takes 6 to 9 months. You need €125,000 in capital just to apply. And you can’t just use any wallet - you need multi-signature systems, cold storage for 95% of assets, and hardware certified to EAL 4+ security standards. It’s not just about security - it’s about legal certainty. The German government wants to make sure that if a custody provider goes bankrupt, your Bitcoin stays yours.

Who Regulates Crypto Custody in Germany?

The BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht, Germany’s Federal Financial Supervisory Authority) is the gatekeeper. It’s the same agency that oversees banks, insurers, and stock exchanges. Since 2020, BaFin has required anyone offering crypto custody services to get a license under the German Banking Act (KWG). But as of January 1, 2025, that changed.

Now, custody providers must comply with both the KWG (Kreditwesengesetz, Germany’s Banking Act) and the MiCAR (Markets in Crypto-Assets Regulation, EU Regulation 2023/1114). MiCAR is a unified EU law that replaces fragmented national rules. But Germany didn’t just adopt it - it built on it. The FinmadiG (Finanzmarktdigitalisierungsgesetz, Act on the Digitalisation of the Financial Market) and the KMAG (Kryptomärkte-Aufsichtsgesetz, Act on the Supervision of Markets for Crypto-Assets) are Germany’s national laws that implement MiCAR and add extra layers of control.

So if you’re a custody provider in Germany, you’re not just dealing with one rulebook. You’re managing two - and they don’t always align.

What Counts as Crypto Custody?

Germany doesn’t just regulate “holding crypto.” It breaks custody into three distinct activities:

• Pure custody - storing private keys on behalf of clients
• Administration - managing transactions, signing, or executing trades
• Safeguarding - protecting assets from loss, theft, or unauthorized access

Any one of these activities triggers a licensing requirement. Even if you’re just a software company selling wallet tech to German clients, if your product lets users store keys without them holding the private keys themselves, you’re considered a custodian. And you need a BaFin license.

There’s one exception: Custodian Wallet Providers (CWPs) (Firms that only provide custody services without other financial activities) are exempt from some KWG rules like capital adequacy and remuneration rules. But they still need a license and must follow all security and segregation rules.

Key Requirements for License Holders

Getting licensed isn’t a formality. It’s a marathon. Here’s what BaFin demands:

• Minimum capital: €125,000 for pure custody. Up to €730,000 if you offer multiple services like trading or exchange.
• Asset segregation: Client crypto must be kept completely separate from the provider’s own assets - both legally and technically. No commingling. Ever.
• Cold storage: At least 95% of assets must be stored offline in hardware wallets.
• Multi-signature wallets: Minimum 3-of-5 signature schemes required for any transaction.
• Security certifications: Hardware wallets must meet Common Criteria EAL 4+ standards. Software must pass quarterly penetration tests by third parties.
• Business continuity: Systems must remain operational for at least 72 hours during a major disruption.
• Record keeping: All transaction logs must be kept for five years.
• Staff qualifications: At least two senior managers must be certified as “fit and proper” by BaFin - a process that’s become harder as demand outpaces supply.

There are over 300 certified compliance officers in Germany right now - and 87 licensed custody providers. That means each officer is managing multiple firms. Talent is scarce, and competition for qualified staff is fierce.

How Germany Compares to Other EU Countries

Germany isn’t the easiest place to launch a crypto custody business - but it might be the safest.

Comparison of Crypto Custody Regulations in Key EU Countries

Country	Licensing Required?	Minimum Capital	Asset Segregation	Processing Time
Germany	Yes (BaFin)	€125,000-€730,000	Strict, legally enforced	6-9 months
France	Registration only for some services	€15,000 (minimum)	Required, but less detailed	2-4 months
Switzerland	Yes (FINMA)	Varies by activity	Required, flexible interpretation	4-8 months
Netherlands	Yes (DNB)	€125,000	Strict	5-7 months
Malta	Yes (MFSA)	€100,000	Basic requirements	3-6 months

France is faster. Switzerland is more flexible. But Germany offers something no one else does: legal clarity for institutions holding both traditional securities and crypto assets. If you’re managing a security token that’s classified as a civil law security under German law, you can use the same custody infrastructure as your bonds or stocks. That’s a huge advantage for banks like Deutsche Bank, which completed its MiCAR transition in just three months because it was already a licensed financial institution.

The Hidden Cost: Compliance Overhead

It’s not just about the license fee. The real cost is in compliance.

A June 2025 survey by the Blockchain Bundesverband found that 54% of German crypto firms spent over €250,000 on regulatory compliance in the past year. That’s 43% higher than the EU average. Why? Because Germany demands more documentation, more audits, more training, and more reporting than anywhere else.

And it’s getting worse. Starting January 1, 2026, the DAC 8 (Directive on Administrative Cooperation, 8th iteration) will require custody providers to report every crypto transaction to German tax authorities. That means new software integrations, data pipelines, and reporting systems - all at a cost of 15-20% more in compliance expenses, according to PwC.

Smaller firms are feeling the pressure. Ethena GmbH, a German crypto startup, was shut down by BaFin in June 2025 for failing to meet custody standards for its USDe stablecoin. Users had until August 6 to redeem their assets - a rare but clear signal that Germany won’t tolerate weak custody practices, even for startups.

Who’s Winning in Germany’s Custody Market?

As of June 2025, total assets under custody in Germany reached €48.7 billion - up 28.3% from the year before. But the market isn’t dominated by crypto-native firms. It’s controlled by banks.

Deutsche Bank, Commerzbank, and DZ Bank together hold 58% of all crypto assets under custody in Germany. They’ve leveraged their existing licenses, infrastructure, and regulatory relationships to move fast under MiCAR. Meanwhile, specialized providers like Coinbase Custody and Finoa hold 27% - a strong second, but still far behind.

Why? Because German institutions don’t just want custody - they want integration. They want to hold Bitcoin alongside corporate bonds in the same system. They want audit trails that match their existing financial controls. And they want BaFin’s stamp of approval, which carries more weight than any marketing slogan.

What’s Next? The Future of Crypto Custody in Germany

Germany isn’t done. By Q2 2026, the Federal Ministry of Justice plans to revise civil securities law to determine which crypto assets qualify as “civil law securities.” That’s a big deal.

If a token is classified as a civil law security, it’s no longer just a crypto asset under MiCAR - it’s a financial instrument under banking law. That means custody providers will need a full banking license, not just a financial services license. Analysts predict 70-80% of security tokens will fall into this category by 2027.

That could push out smaller providers who can’t afford banking-level compliance. But it also means Germany will become the most secure custody hub in Europe - not because it’s the cheapest, but because it’s the most reliable.

Deloitte forecasts a 45% drop in custody-related incidents after full MiCAR implementation. That’s not just a number - it’s a promise. A promise that if your assets are stored in Germany, they’re protected by law, technology, and oversight that few other countries can match.

Final Thoughts

Germany’s crypto custody rules aren’t for everyone. They’re expensive, slow, and complex. But if you’re an institutional investor, a bank, or a company managing large amounts of digital assets, they’re the gold standard. The country didn’t build this system to attract startups. It built it to protect wealth.

And for those who can meet the standards? The reward isn’t just market access. It’s trust.

If you’re building or investing in crypto infrastructure in Europe, Germany’s custody rules aren’t a hurdle - they’re a benchmark. The country has turned regulation into a competitive advantage. And for those who can meet the bar, the rewards are clear: trust, stability, and access to one of the largest and most sophisticated financial markets in the world.