Bitcoins Under European and German Banking and Capital Markets Laws

Abstract

Cryptocurrencies such as Bitcoin and Ether are perhaps the most dazzling phenomena of current capital market activity. The boom at the end of 2017 was followed by a spectacular crash soon after. Nonetheless, the total capitalization of cryptocurrencies is more than $ 200 billion. Regulators around the world have warned investors of the dangers associated with virtual currencies due to high volatility, pseudonymity and lack of government control. But to what extent is state control really missing? The German regulatory authority (BaFin) classifies Bitcoins as units of account (Rechnungseinheiten) under German law and thus as financial instruments. The consequence is, inter alia, that the operators of Bitcoin trading venues are subject to authorization requirements. The practice had adjusted to accommodate this view. A recent judgment of the Kammergericht Berlin (KG) is therefore all the more disruptive. In this criminal case the court opposed the view of the German supervisory authority BaFin and acquitted the operator of an unlicensed Bitcoin trading platform from allegations of unauthorized banking operations. The present article frames a broader question and examines whether and to what extent Bitcoins can be captured using the categories of applicable German and European banking and capital markets law. Are Bitcoins financial instruments as defined by MiFID II? Payment Instruments as defined by the Payment Services Directive? Units of account within the meaning of the German Banking Act (KWG)? It concludes with an outlook on the expected consequences of the KG ruling.

Keywords: Bitcoin, Ethereum, Cryptocurrencies, EU securities law, German law, BaFin, Unit of Account, Instrument of Payment, Financial Instrument, Commodity

JEL Classification: K22