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New details have emerged from the LocalBitcoins management team following its announcement this week that it would abruptly halt services in Germany.

The peer-to-peer bitcoin marketplace is one of the older and more popular bitcoin startups, having launched in July 2012, though its users have faced legal troubles in some jurisdictions. Adding fuel to speculation was the original announcement from LocalBitcoins that it would shutdown its services due to "regulatory reasons".

Speaking to CoinDesk, LocalBitcoins vice president Nikolaus Kangas reported that the company has been contacted by Germany's Federal Financial Supervisory Authority (BaFin), the country's financial service and securities regulator.

Kangas explained:

"Practically, there is a possibility that our business model requires some kind of license in Germany, and we do not currently have such a license."

In the face of this information, LocalBicoins indicated that its lawyers advised the company to close the service temporarily as it searches for a solution.

However, BaFin was less clear, according to Kangas, about the kind of license LocalBitcoins will need to secure in order to restore its services in Germany or who it would need to speak to about such preparations.

"We do not know any exact details regarding that yet," Kangas said. "Right now, we are trying to find answers to these questions."

LocalBitcoins estimated that it had more than 8,000 active users in Germany at the time the service was closed.

Paths forward

Kangas acknowledged that the news could lead LocalBitcoins to exit the German market, though he suggested that such speculation is preliminary.

As for now, he indicated that it is researching the cost of licensure, as well as how much work it would need to conduct to procure such documentation.

"We are trying to research what kind of options we have regarding licensure, but of course our intention is to continue offering services in Germany as soon as possible," he said.

Kangas further apologised to customers who were affected by the move, stating that it was "really disappointing" that the company needed to make the decision.

"The roots of this service are actually partly in Germany, so it is kind of ironic and sad that we cannot offer the service there anymore," he added.

Favorable jurisdiction

The announcement may have come as a surprise to many in the community given that Germany has long been perceived as a friendly jurisdiction for bitcoin companies due to its August 2013 decision to recognize bitcoin as a form of 'private money'.

Such classification stands in contrast to jurisdictions like in US, where bitcoin is considered property, and therefore subject to additional tax reporting requirements when used in the sale of goods and services and as an investment tool.

Further, Germany is the home of Fidor Bank, the Internet direct bank that has been one of the most vocal and visible proponents of bitcoin in the traditional financial space, a factor its partner Kraken attributes to the country's regulatory environment.

Kangas suggested that Germany's actual rules, however, may not be as accommodating to LocalBicoins. "Bitcoins are not considered as money but as a 'unit of account'," he said.

However, at this point, Kangas indicated its too early to draw any conclusions about how past statements from BaFin might help them move forward.

"We are not sure whether that is relevant regarding our case or not," Kangas added.

German parliament image via Shutterstock

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