Legal terms · Securities law · Cryptocurrency laws

The expansion of virtual currencies like Bitcoin and Ethereum has put U.S. regulators in a dilemma between encouraging innovation and safeguarding investors.

The evolution of cryptocurrency is primarily due to the rise in technology worldwide. It has pushed financial boundaries, leaving with the possibility that cryptocurrencies may become the central element of the global economy.

The significance and impact of the use of cryptocurrency in the U.S. highlights the need to regulate it. However, there is a challenge in establishing a clear policy framework. With the digital revolution taking place through cryptocurrency, the state and federal governments are trying to determine how to define their role in regulating this new asset class in the best way possible.

Jump to ↓

What is cryptocurrency?

What is cryptocurrency regulation?

How is cryptocurrency regulated?

State regulations

International Standard-Setting Bodies

Challenges in the US crypto regulation

What is cryptocurrency?

Cryptocurrency is a type of digital money that is a decentralized digital asset designed as a medium of exchange, utilizing cryptographic protocols to regulate the creation of new units. It exists only online and is not controlled by any government, central bank, or authority.

Cryptocurrency uses a secure technology called cryptography to keep transactions safe and verify fund transfers to prevent fraud. It operates on a decentralized system and transactions are recorded on a public ledger called blockchain. The regulatory treatment of cryptocurrency varies across jurisdictions, with legal considerations encompassing anti-money laundering compliance, securities laws, taxation, and consumer protection frameworks.

What is cryptocurrency regulation?

Crypto regulations are the legal rules and guidelines that are present and issued by governments to shape how digital assets such as virtual currency operate. These laws have varied approaches across nations.

In the U.S., there are various states wherein some are friendly towards market participants embracing crypto with clear regulations, while others ban it outright.

Around 60 percent of U.S. citizens lack confidence in cryptocurrency trading or investment, considering the existing systems to be unreliable or unsafe. One primary reason for this distrust may be the absence of a single, consistent set of laws to regulate cryptocurrencies.

The existing regulations range from covering everything about how cryptocurrencies are to be created and traded to how they interact with traditional financial systems. Well-defined rules can help the crypto market in the following ways:

• Help in protecting investors from scams and market manipulation
• Ensure that there is transparency in the transaction, along with accurate information
• Help prevent illegal activities like money laundering, fraud, misleading information, etc
• Clarify the tax rules that apply to digital currencies
• Encourages market participation and confidence in the investors while encouraging blockchain innovation
• Regulates the risks that are or may be associated with the transactions

How is cryptocurrency regulated?

No defined regulation is used to regulate cryptocurrency in the U.S. as of 2025.

However, a major crypto legislation was introduced in 2024, i.e. the Financial Innovation and Technology for the 21st Century Act (or FIT21), that has been passed by the U.S. House of Representatives but has not yet been enforced. The legislation is aimed at emphasizing the role of the Commodity Futures Trading Commission (CFTC) as a lead crypto regulator in the U.S.

In the absence of one framework for cryptocurrency, the authorities try to regulate and enforce the already existing laws both at the federal and state levels, which are as follows.

Federal regulations

At the Federal level, regulations have predominantly dealt with various administrative agencies and bureaus.

The Securities and Exchange Commission (SEC)

The SEC primarily deals with securities such as convertible notes, stocks, debentures, etc. They aim to protect investors through mandatory registration of the securities that qualify for it.

The SEC brought lawsuits against major platforms such as Coinbase, Binance, Kraken, etc, for violation of regulations.

Due to the difference between the cryptocurrency and securities, a judicial split emerged in 2023, with Southern District of New York (SDNY) Judge Torres ruling in SEC v. Ripple Labs that only the institutional sales of XRP were securities, while Judge Rakoff in SEC v. Terraform Labs held that Terraform’s UST stablecoin was a security.

Courts remain divided on this issue at the time of this writing.

Commodity Futures Trading Commission (CFTC)

CFTC is a federal agency that is tasked with regulating U.S. commodities and derivative markets.

The CFTC regulates cryptocurrencies as commodities under the Commodity Exchange Act and has developed jurisdiction in derivative markets, all of which are set forth in decisions such as CFTC v. McDonnell (2018) and CFTC v. My Big Coin Pay (2018), etc.

In 2017, the CFTC introduced a self-certification process for bitcoin futures which allowed exchanges to launch crypto derivatives. For enforcement measures, the CFTC has engaged in high-profile enforcement matters against Uniswap, Binance, Celsius, Ooki DAO, and secured an order against defaulted FTX to pay a penalty of $12.7 billion.

Internal Revenue Service (IRS)

Since 2014, the IRS has treated cryptocurrency as a digital representation of value which is different from a representation of the U.S. dollar or any other real currency. It functions as a unit of account, a store of value, and a medium of exchange.​

Being categorized as property makes each sale, trade, or buying of cryptocurrency taxable under capital gains taxes like stocks or property. Regardless of whether one incurs profit or loss, correct reporting of the same must be done according to the IRS.

US Department of the Treasury’s Financial Crimes Enforcement Unit (FinCEN)

FinCEN was the first U.S. federal regulator to address cryptocurrency, by issuing guidance back in 2013.

It governs virtual currency businesses and wallet services as Money Services Businesses and mandates them to have anti-money laundering and counter-terrorism financing regulations, specifically on Money Services Businesses dealing with Convertible Virtual Currency.

US Department of the Treasury’s Office of Foreign Assets Control (OFAC)

OFAC is a regulatory agency that administers and enforces U.S. economic and trade sanctions to maintain national security and foreign policy interests.

These sanctions target countries, terrorists, narcotics traffickers, and other threats including those involved in cryptocurrency activities. OFAC applies the same sanctions compliance standards to transactions involving digital assets as it does to those involving traditional currency.

U.S. Department of Justice (DOJ)

In October 2021, the DOJ created the National Cryptocurrency Enforcement Team (NCET) to enhance its investigative resources to control criminal activity in the crypto environment.

The DOJ has been involved in several high-profile cases and has even charged the crypto market with insider trading, including against former Coinbase exchange employees.

Federal Deposit Insurance Company (FDIC)

After issuing joint prudential crypto releases in November 2021, the FDIC instructed all FDIC-supervised institutions in April 2022 to notify if they were conducting crypto business or intended to engage in it. This was required so the FDIC could review the information provided.

Federal Reserve Board (FRB)

FRB supervises the banking institutions and banking activities.

It issued reports on stablecoins and central bank digital currency in January 2022. After that jointly in 2023, with FDIC and OCC, the FRB released two statements on the risks that are associated with crypto assets and the participants.

The FRB also issued supervisory guidance requiring banks under its oversight to notify their lead supervisory contact before engaging in crypto-asset activities.

State regulations

Financial regulators for cryptocurrency at the state level are as follows:

New York State Department of Financial Services (NYDFS)

In contrast to other crypto regulations that have been prominently adopted by other states, New York has a different regime that is focused on customer protection.

It was the first comprehensive crypto regulatory regime among major U.S. states which led the way by introducing the concept of BitLicensees — used to self-certify the listing or adoption of new virtual currencies. However, it is generally considered to be prohibitive and burdensome by the market participants.

California Department of Financial Protection and Innovation (DFPI)

On one hand, the DFPI has shown a friendly approach to the crypto market participants providing a narrow reading of state licensing requirements. On the other hand, it has implemented a comprehensive state crypto regulatory framework.

State attorneys general, including the New York State Attorney General (NYAG)

NYAG is one of the crypto regulators in the U.S. that has actively participated in filing charges and settling with the crypto platforms and market participants of all sizes.

International Standard-Setting Bodies

There is a constant rise in the involvement of digital currency transactions around the world, which often lightens the line between the borders as well.

Now, given the evolving complexities of digital asset markets, several prominent international financial standard-setting bodies have undertaken initiatives to regulate cryptocurrencies and make sure that they are regulated across jurisdictions.

Bank for International Settlements (BIS)

BIS acts as the central bank, and therefore it plays a role in shaping the regulatory framework for Central Bank Digital Currencies and stablecoins. BIS has issued various reports on stablecoin arrangements.

Basel Committee on Banking Supervision (BCBS)

BCBS is the primary global standard-setting body for prudential bank regulation, which has developed a framework to govern the exposure of banks to crypto assets.

Financial Stability Board (FSB)

The FSB contains the regulatory, supervisory, and oversight recommendations for crypto-asset markets which establishes high-level global standards for crypto regulation.

Financial Action Task Force (FATF)

FATF is a global authority on anti-money laundering and counter-terrorist financing, it has issued extensive guidance on mitigating illicit finance risks in the crypto sector.

3 Key challenges

Cryptocurrency regulation in the U.S. presents significant challenges due to its fragmented nature, requiring businesses to comply with a complex framework of overlapping and, at times, conflicting federal and state laws.

1. ​Since each state has different regulations, it makes nationwide operations difficult.
2. Money transmitter licensing rules differ across states, which may be friendly or strict, making compliance restrictive and complex.
3. There is a lack of clear crypto-specific laws which forces businesses to interpret existing financial regulations in different ways, leading to uncertainty and misinterpretation.

Special Report

Packet of subscriber resources from the legal industry’s most trusted how-to service

Access special report ↗

More expert resources

Get access and view curated resources maintained by our attorney-editors below when you sign up for a free trial.

Toolkits

Practice Notes

Bitcoin is surging after a rollercoaster few months after Donald Trump’s speech at a major cryptocurrency summit.

Trump spoke at the Digital Asset Summit (DAS) in New York on Thursday and bitcoin, by far the largest cryptocurrency, recovered much of its losses from recent months.

Bitcoin went over $100,000 (£77,200) for the first time in December 2024 but has since crashed down to $79,000 (£61,000) amid wider fears of economic turmoil caused by the Trump administration.

But ahead of Trump’s speech, the currency climbed back up to $86,000 (£66,400).

Speaking via video link from the White House Trump promised to make the US a bitcoin “superpower” and the “undisputed crypto capital of the world.”

He highlighted his administration’s actions on loosening regulations on the crypto industry, including ending what he called “operation chokepoint 2.0”, which saw federal agencies encouraging banks to not operate in risky sectors, particularly the crypto industry.

Trump said the operation went too far and acted as a form of “lawfare” against the industry.

The president has also instituted the US government’s Crypto Federal Reserve which will hold certain cryptocurrencies when they are acquired by state operations rather than sell them.

Despite the losses of recent months bitcoin has been on an incredible run in recent years after hitting a low of $16,000 (£12,300) in 2022. A lot of the recent gains have been associated with an event known as the Bitcoin halving that happened on 20 April 2024.

Halving is an event automatically triggered by the bitcoin network, which is designed to prevent inflation in the cryptocurrency but it can also trigger large price rises.

The halving happens roughly every four years and after each halving the following one to two years often see bitcoin’s price explode.

Aaron Peak, personal finance expert at credit reference company CredAbility, said: “Bitcoin is notoriously volatile: prices can surge or crash unpredictably, so investors should always be cautious.

“Bitcoin’s price has been on a rollercoaster recently, and we’ve seen some major price swings in recent months.”

What is Bitcoin halving?

Bitcoin halving reduces the rewards of mining the cryptocurrency by 50%.

Crypto miners use high-end computing rigs to perform calculations and are rewarded with bitcoin but after each halving, the reward decreases.

Miners complete calculations required to verify transactions, using computers to make guesses to solve the puzzle and the first to solve it adds a new block to the blockchain – a digital ledger that records and verifies transactions across a network of computers.

The dates of the halvings are not set, rather they occur every 210,000 blocks that are mined.

Aaron Peak, personal finance expert at credit reference company CredAbility said: “Right now, miners – who verify bitcoin transactions – earn 6.25 bitcoins for each new block they add to the blockchain.”

“After the next halving, their reward will drop to 3.125 bitcoins. This reduces the supply of new coins, which can affect bitcoin’s price.”

Why does it matter?

Bitcoin halving performs several important functions, restricting supply and limiting inflation, which helps to maintain the cryptocurrency’s value.

Peak explains: “Halving is important because it slows down how quickly new bitcoins are created. Historically, bitcoin halving has led to price increases. When fewer new bitcoins enter the market, but demand stays the same (or grows), the price often rises.

“It’s a bit like gold, if mining gold became twice as hard overnight, but people still wanted it, the price would likely go up. However, past performance doesn’t guarantee the same outcome every time, so there are no certainties.”

When is the next Bitcoin halving?

The next bitcoin halving event is expected to happen in 2028, but it all depends on how quickly miners create new blocks, Peak explained.

Peak said: “It will happen after another 210,000 blocks have been added to the blockchain, which usually takes around four years.

“This happens because bitcoin has a fixed supply – only 21 million bitcoins will ever exist. The process is built into bitcoin’s code to control inflation, a bit like how central banks manage the money supply, except no one can change bitcoin’s rules.”

Bitcoin halvings are expected to continue until 2040.

Grand Prairie, Texas — Joseph Buentello, 80, was cruising through retirement when he received a call erroneously claiming his son was in jail.

“I was scared, I hit the panic button and I let my panic take control of my good judgment,” Buentello, of Grand Prairie, Texas, told CBS News. 

The caller told Buentello that if he wanted to get his son out, he needed to rush to his local grocery store and send $5,000 through a bitcoin ATM. 

Buentello said he never even thought about calling his son first.

“They said there is nothing we can do about it,” said Buentello the ATM operator told him after he was scammed. “That money has already been distributed. They said it was distributed the minute you got through putting your money in there.”

That is why, Buentello learned, the cryptocurrency scammers wanted him to use that machine. Often found inside convenience stores, Bitcoin ATMs resemble regular ATMs and provide a legitimate and straightforward method to convert cash into cryptocurrency.

According to data from the Federal Trade Commission, between 2020 to 2023, consumer losses in bitcoin ATM scams skyrocketed nearly tenfold, from $12 million annually in 2020 to $114 million annually in 2023. During that timeframe, consumers over the age of 60 were more than three times more likely than younger adults to lose money to bitcoin scams, the FTC found.

And getting the money back has been tough.

When McLennan County Sheriff Parnell McNamara first joined law enforcement back in 1970, he said the biggest thieves in the Texas county were bank robbers.

“Take a gun, go rob a bank, get the money, and we’d go after ’em,” McNamara said. “But this is a totally different deal now.”

A couple of years ago, after a caller scammed an 83-year-old woman in Waco, Texas, into depositing $15,000 into a bitcoin ATM, McNamara’s deputies pulled the cash right out of the machine and returned it to her.

The bitcoin ATM operator then sued the county, claiming the seizure was unlawful, but the lawsuit was eventually dismissed and the woman was allowed to keep the money.

However, the lawsuit was dismissed only after the county admitted that the funds were seized “in error.”

McNamara doesn’t regret how the situation was handled.

“I don’t regret it at all,” McNamara said. “We got the lady’s money back. It should have gone back to her.”

Bitcoin ATM operators told CBS News that they take extensive measures to protect users from fraud, including displaying up to six screens alerting customers to potential scams.

In recent years, a handful of states, including California, Vermont and Minnesota passed laws regulating Bitcoin ATMs. However, most of the country, including Texas, has no regulations.  

“I feel like such a fool,” Buentello said.

Had there been any sort of refund policy in place when he made his transaction, Buentello believes could have saved his money and avoided the scam.

According to the FTC, scammers will often offer an urgent reason for the victim to withdraw cash from their bank account and deposit it in a bitcoin ATM. They will provide a QR code that victims can scan, which deposits the money directly into the scammers’ crypto account.

Some tips from the FTC to avoid being scammed include never clinking on unknown links or responding directly to unexpected calls or unknown text messages. Scammers will be trying to rush you, so you should slow down and consult with someone you trust. And never withdraw cash in response to an unexpected call or message.