Which Tokens Are Legal and BaFin Regulations
Tokens have become indispensable in the digital financial world. Whether as a means of payment, digital securities or innovative financing instruments – they offer numerous areas of application. At the same time, their growing proliferation raises regulatory questions. In Germany, BaFin plays a central role in the supervision and regulation of tokens and cryptocurrencies.
Anyone who invests in digital assets or wants to issue tokens themselves should be thoroughly familiar with the legal framework. In this article you will learn which tokens are legal, how BaFin regulates them and what risks exist. We also shed light on the classification of various types of tokens and the legal requirements for issuers and investors.
Inhaltsverzeichnis
- 1 Which Tokens Are Legal and BaFin Regulations
- 1.1 Tokens Explained Simply
- 1.2 Cryptocurrencies and Their Legal Classification
- 1.3 Tokens as Securities: What Does the Regulation Say?
- 1.4 The Risk of Investing in Tokens
- 1.5 Crypto Assets and Security Tokens: Differences and Similarities
- 1.6 Assets and Tokens as Currency: An Overview of Digital Investments
- 1.7 BaFin: Responsibility and Supervision of Tokens
- 1.8 In Conclusion
- 1.9 Further Articles
Tokens Explained Simply
Tokens are digital units that are stored and transferred on a blockchain. They can fulfil different functions, ranging from means of payment to digital securities.
The legal classification of tokens depends on several factors. Decisive are the token’s characteristics, its use and its tradability. While some tokens are deemed financial instruments or securities, others are not subject to strict regulation. It is therefore important to understand the different token types and their legal consequences.
A special category is the utility token. These do not grant any claim to a financial equivalent but enable access to a specific service or a product. A well-known example is tokens that can be used within a platform to access certain features. Because utility tokens do not constitute financial instruments, they are generally subject to no strict regulation – unless they bear the characteristics of a security.
Cryptocurrencies and Their Legal Classification
Cryptocurrencies such as Bitcoin or Ethereum are a special form of token. They are based on a decentralised blockchain and enable digital transactions without a central authority.
Although cryptocurrencies are used as means of payment, they are not official currencies. In Germany, they are classified as financial instruments and fall under BaFin regulation. Companies that trade or custody cryptocurrencies require a licence. Private individuals can buy and sell cryptocurrencies but must observe tax regulations.
Tokens as Securities: What Does the Regulation Say?
Some tokens are considered securities if they meet certain criteria. BaFin is guided by the definition of securities in the Securities Trading Act.
Three key criteria are decisive:
- Transferability – A token must be transferable to qualify as a security.
- Tradability – If a token is traded on an exchange, it often meets the security criteria.
- Rights of the holder – If a token grants the holder participation rights in a company or an asset, it falls under securities regulation.
Issuers of such tokens must comply with legal requirements, including the prospectus requirement. This means they must publish a detailed report on the token before bringing it to market.
The Risk of Investing in Tokens
Token investments offer opportunities but also entail risks. Investors should be aware of the potential dangers before investing in digital assets.
The three biggest risks:
- Price volatility – Tokens and cryptocurrencies are subject to strong price fluctuations. An investment can yield high gains but also significant losses.
- Regulatory uncertainties – Because the legal framework for tokens is not yet clarified in all areas, regulations may change.
- Risk of fraud – Due to the anonymity inherent in blockchain technology, numerous fraud cases have occurred in which investors lose their money.
To minimise risks, investors should examine the respective tokens and their legal situation in depth.
Crypto Assets and Security Tokens: Differences and Similarities
Crypto assets encompass numerous digital assets, including cryptocurrencies, tokens and digital securities. Security tokens are a special type of crypto asset that are comparable to traditional financial instruments.
The main differences can be summarised as follows:
- Crypto assets are digital units stored on a blockchain. They can be used as means of payment, digital securities or equity interests.
- Security tokens represent shares in companies, real estate or other assets. They are therefore subject to the same rules as classic securities.
BaFin assesses security tokens based on their characteristics and decides whether they fall under securities regulation.
Assets and Tokens as Currency: An Overview of Digital Investments
Tokens can digitally represent a variety of assets. In addition to securities and equity interests, there are also real-estate or art tokens.
This form of digitalisation makes it possible to split assets into smaller units and make them easier to trade. At the same time, it brings legal challenges, since different regulations apply depending on the type of token.
Companies issuing tokens should thoroughly inform themselves about the regulatory requirements in advance to avoid legal problems.
BaFin: Responsibility and Supervision of Tokens
BaFin is the central supervisory authority for the regulation of financial markets in Germany. It supervises banks, insurance companies and financial service providers – and for some years now also the market for cryptocurrencies and tokens.
BaFin examines whether a token falls under existing financial market laws and which approvals are required for issuance or trading. Companies that issue or trade tokens often have to apply for a licence and comply with the legal requirements.
Bitcoin and Other Payment Tokens: Legal Status
Currency tokens are digital units used as means of payment. Bitcoin is the best-known example. Legally, currency tokens are not official currencies but financial instruments. This means that companies that custody or trade Bitcoin or other currency tokens require a licence from BaFin.
Private individuals can buy and sell Bitcoin without needing a permit. Nevertheless, they should be aware of the tax and legal aspects.
Initial Coin Offerings (ICOs): Financing Through Tokens
An Initial Coin Offering (ICO) is a method of financing projects by selling tokens. Companies use ICOs to raise capital without involving traditional investors.
BaFin checks whether the offered tokens are financial instruments or securities. In this case, issuers must comply with specific regulations, including the prospectus requirement. Investors should obtain detailed information about the project before participating in an ICO, as there have been numerous fraudulent offerings in the past.
E-Money Tokens and Financial Instruments
E-money tokens are digital tokens that can be used as electronic means of payment. They must meet specific legal criteria and are subject to strict regulatory requirements.
Issuing e-money tokens requires approval from BaFin. Companies offering such tokens must comply with the provisions of the Payment Services Supervision Act (ZAG).
MiCAR Defines the Future of Crypto Regulation
The new European regulation MiCAR (Markets in Crypto-Assets Regulation) creates a unified legal framework for crypto assets in the EU. MiCAR aims to increase transparency, strengthen investor protection and ensure clear regulation of tokens. Companies and investors should familiarise themselves with the new rules at an early stage to avoid legal risks.
In Conclusion
