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.

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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.

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