Source of Funds for Crypto

Source of funds asks where the money in one specific transaction came from, such as the sale of a specific batch of bitcoin. Source of wealth asks a wider question: how did this person accumulate their assets overall, across years of trading, salary, inheritance or a business sale. A bank runs the source of funds check on the transaction in front of it; it runs a source of wealth review when a customer's total profile, not just one deposit, needs explaining, for example before it accepts a large new client whose crypto history needs a closer look.

Section 10(1) no. 5 of the Geldwäschegesetz obliges a bank to keep monitoring a business relationship and, where needed, to check its transactions against what the bank knows about where the customer's assets came from. That duty does not end at account opening; it applies for as long as the account stays open, so a large crypto-linked deposit years into a relationship can trigger the same question a new account would. BaFin supervises how banks apply this rule, and a bank that books a transaction without a plausible answer risks its own regulatory exposure, not just the customer's.

For crypto specifically, banks and exchanges typically ask for a combination of documents: exchange trade histories showing the original purchase, wallet transaction records connecting a purchase to the funds now being moved, tax filings that reported crypto gains, and, for larger or older holdings, a narrative that explains the pattern of activity over time. Crypto exchanges such as Bitpanda and Coinbase run their own source of funds checks before releasing large withdrawals, using the same underlying logic a bank applies. The documentation differs from a fiat source of funds check mainly in scope: proving where a fiat deposit came from usually means one bank statement, while crypto often means reconstructing a purchase history across several platforms and years.

A notary handling a German property purchase is itself an obliged entity under section 2 of the GwG and has to check the source of funds for a buyer paying with crypto proceeds before completing the sale, the same way a bank does before accepting a deposit. This is a frequent friction point when someone wants to convert crypto gains into real estate: the transaction moves only as fast as the documentation trail can be assembled and verified, and a notary who cannot get comfortable with the answer will delay or decline to complete the purchase.

Finance Loop brings together the compliance officers and wealth managers who handle source of funds questions for crypto clients, at events such as When Banks Say 'No' in Frankfurt, where payments governed by sanctions and anti-money laundering law were the topic. Source of funds sits in Finance Loop's Risk & Compliance track, next to KYC and crypto AML.

Exchange trade confirmations, wallet transaction records, bank statements showing the original fiat deposit used to buy crypto, and tax filings reporting the gains together build a source of funds file. A bank or notary weighs the whole set, since crypto history often spans several platforms and no single document covers it.

No. KYC establishes who the customer is: identity, beneficial ownership and purpose of the account. Source of funds establishes where a specific sum of money came from. A customer can pass identity checks and still fail a source of funds review if the origin of the money stays unclear. See the KYC vs AML answer for how identity and money-laundering checks divide up.

A crypto exchange operating in the EU is an obliged entity under anti-money-laundering law and has to know that the funds moving through its platform are not the proceeds of crime. Proof of funds requests usually come at large deposits, large withdrawals or when a customer's activity pattern changes, and they protect the exchange's own license as much as they screen the customer.