finance
10 years ago: Germany ennobles Bitcoin as “private money”
According to a survey by the digital association Bitkom, every third resident in Germany aged 16 and over is considering investing in cryptocurrencies. photo
© Fernando Gutierrez-Juarez/dpa
When the world was on the brink of a global financial catastrophe in autumn 2008, bitcoin emerged as an alternative to the traditional financial system. What happened since then?
According to a representative survey by the digital association Bitkom, despite all the imponderables, every third resident over the age of 16 is considering investing in cryptocurrencies such as Bitcoin, Ether & Co. Three percent of respondents say they have bought crypto assets in the past, and six percent plan to do so afterwards. And 23 percent definitely don’t want to rule it out.
Ministry of Finance set legal framework
The fact that bitcoin trading is possible in this country in a reasonably regulated environment is also thanks to the Federal Ministry of Finance. Ten years ago, the house of then Finance Minister Wolfgang Schäuble (CDU) recognized Bitcoin as “private money” and thus also laid down a legal framework for the taxation of crypto profits.
The fundamental decision was triggered by a parliamentary question from the FDP member of the Bundestag, Frank Schäffler. The business administration graduate wanted to know how Bitcoin profits should be taxed according to the federal government’s assessment. The answer from the Federal Ministry of Finance, which became known ten years ago (August 16, 2013) through an article in the “Frankfurter Allgemeine Zeitung”, was very fundamental.
“It was already a sensation back then that the federal government stated in its answer to my inquiry that Bitcoin was “private money”,” Schäffler recalled ten years later. Until then, Bitcoin was “something strange,” said the FDP deputy of the German Press Agency. “You didn’t know that at all. Or he was pushed into the obscure corner.” The statement by the federal government was also observed worldwide at the time.
The Frankfurt economist Philipp Sandner, one of the leading blockchain experts in Germany, can also agree with the classification of the MP: “The assessment of the ministry was very fundamental for the handling of Bitcoin in Germany.” It has held its own over the past ten years and has never had to be revised. “The decision made it clear very early on how Bitcoin should be correctly assessed, namely as a raw material and store of value, not as a currency or as a payment service or something similar. The Federal Ministry of Finance did everything right at the time and even at an early stage,” says Sandner.
Tax Consequences
The tax consequences of the government’s response are still valid today. After a one-year holding period, speculative profits or income from the sale of mined crypto assets such as Bitcoin are tax-free. “However, if you gamble and go in and out relatively quickly, you have to bear the full tax rate on Bitcoin profits, i.e. the personal income tax rate,” says expert Sandner. However, the longer holding is very much in line with the Bitcoin spirit anyway. “True bitcoin fans want to buy once and stay invested forever and ever or get out really late.”
The decision from the ministry’s response ten years ago is in line with the crypto custody rules that were enacted in Germany three and a half years ago and the so-called MiCA regulation (Markets in Crypto Assets), which came into force at EU level in early July 2023 has come into force. All of these regulations tend to encourage long-term Bitcoin investments. “As a result, Germany has developed into a fairly bitcoin-friendly country, even if many are not aware of it,” says Sandner.
Course developed sensationally well
Despite various setbacks, the Bitcoin price has developed sensationally well since the German government’s pioneering response ten years ago. Anyone who had exchanged the sum of 4000 euros for Bitcoin in August 2013 and held it since then could now exchange more than one million euros tax-free ten years later. Equities were far from able to keep up over this period: For example, if you had invested the same 4,000 euros in Apple shares ten years ago, you could currently only look forward to a portfolio worth around 34,000 euros. And a withholding tax of 25 percent would also be due on the price gains in the event of a sale.
Investor legend Warren Buffett, CEO of Berkshire Hathaway, nevertheless warns against putting even a single penny in cryptocurrencies. Bitcoin is a “gambler token” and has no intrinsic value, the billionaire recently said on US television channel CNBC. The 92-year-old compared the crypto market to a roulette table and slot machines.
Bitcoin expert Sandner sees it differently. The recent scandal surrounding the bankruptcy of the crypto exchange FTX by alleged fraudster Sam Bankman-Fried led to a “proper crash” for Bitcoin and the price dropped to around 17,000 US dollars. “But we are now back at around $29,000 per bitcoin.” This is also due to the fact that the German authorities correctly assessed the FTX scandal. “They distinguished between an unregulated company that has imploded through fraudulent schemes and the technology that has proven viable.”