UNPOPULAR OPINION

The cryptocurrency landscape in the United States is a complex and ever-evolving mosaic of federal and state regulations. Unlike traditional financial markets with established frameworks, digital assets operate within a legal grey area, leading to uncertainty for both investors and businesses. Staying informed about the latest developments and understanding the various agencies involved is crucial for navigating this intricate environment.

The Fragmented Federal Landscape

At the federal level, no single comprehensive law specifically governs cryptocurrency. Instead, existing financial laws are being applied to digital assets, leading to a multi-agency approach with overlapping jurisdictions:

• Securities and Exchange Commission (SEC): The SEC primarily focuses on whether a cryptocurrency or crypto-related product constitutes a “security” under the Howey Test. If a digital asset is deemed a security, it falls under the SEC’s purview, requiring registration or an exemption. The SEC’s 2025 guidance aims to provide clearer distinctions, emphasizing factors like a “reasonable expectation of profit” based on a centralized team’s efforts, the initial sale context, ongoing utility, and the degree of issuer influence. This significantly impacts how crypto projects launch tokens and how exchanges list them. The SEC has actively pursued enforcement actions against projects and platforms it deems to be offering unregistered securities.
• Commodity Futures Trading Commission (CFTC): The CFTC generally considers Bitcoin and certain other cryptocurrencies as “commodities.” Its jurisdiction extends to derivatives markets based on these assets (e.g., Bitcoin futures). The CFTC has also asserted its authority over the spot market for digital assets, particularly in cases of fraud or market manipulation. The proposed Financial Innovation and Technology for the 21st Century Act (FIT21), passed by the House of Representatives in 2024 but not yet enforced, aims to solidify the CFTC’s role as a lead crypto regulator.
• Financial Crimes Enforcement Network (FinCEN): As a bureau of the U.S. Treasury Department, FinCEN focuses on combating money laundering (AML) and terrorist financing (CFT) activities involving digital assets. It classifies certain virtual currency businesses (like exchanges and wallet services that handle convertible virtual currencies) as “Money Services Businesses” (MSBs). MSBs are required to register with FinCEN and implement robust AML/CFT programs, including Know Your Customer (KYC) procedures, transaction monitoring, and Suspicious Activity Report (SAR) filings. The “Travel Rule,” which mandates the transmission of originator and beneficiary information for transactions above a certain threshold, also applies to many crypto businesses.
• Internal Revenue Service (IRS): For tax purposes, the IRS generally treats cryptocurrency as “property,” not currency. This means that every transaction involving crypto – buying, selling, trading, or even using it to purchase goods or services – can trigger a taxable event.
  • Capital Gains/Losses: When you sell, trade, or dispose of crypto, any profit (gain) or loss is subject to capital gains tax. The rate depends on how long you held the asset: short-term (one year or less, taxed at ordinary income rates) or long-term (over one year, generally lower rates).
  • Ordinary Income: Receiving crypto as payment, mining rewards, staking rewards, or airdrops is typically taxed as ordinary income at its fair market value in USD at the time of receipt.
  • Reporting: Investors are required to accurately report all crypto transactions on their federal income tax returns, often using forms like Form 8949 and Schedule D.
• Office of Foreign Assets Control (OFAC): OFAC administers and enforces U.S. economic and trade sanctions. This agency applies its sanctions compliance standards to transactions involving digital assets, ensuring that crypto is not used to circumvent sanctions against countries, entities, or individuals.

The Patchwork of State-Level Regulations

Adding another layer of complexity, individual states have their own regulations, which can vary significantly and sometimes conflict with federal guidance. This creates a challenging environment for crypto businesses operating nationwide.

• Money Transmitter Licenses (MTLs): Many states require crypto exchanges and other businesses involved in transmitting or holding customer funds to obtain specific Money Transmitter Licenses. The requirements for these licenses differ widely across states, making compliance burdensome.
• “BitLicense” (New York): New York’s BitLicense is a prominent example of a stringent state-specific regulatory framework, requiring businesses engaged in virtual currency activities within the state to obtain a license from the New York Department of Financial Services (NYDFS).
• Evolving State Laws: In 2025, numerous states are introducing or enacting legislation related to digital assets, addressing issues like cryptocurrency kiosks, the legal status of digital assets, and even prohibitions on central bank digital currencies (CBDCs). For instance, Arizona has established a Bitcoin and Digital Assets Reserve Fund, while California’s Digital Financial Assets Law (DFAL) is set to take effect, requiring licenses for businesses engaging in digital financial asset activities.

What Investors and Businesses Need to Know:

For Investors:

• Tax Compliance is Non-Negotiable: The IRS is increasingly focused on crypto tax compliance. Maintain meticulous records of all your transactions, including purchase dates, costs, sale prices, and fair market values. Utilize crypto tax software or consult with a crypto-savvy accountant.
• “Security” vs. “Commodity”: Be aware of the ongoing debate about asset classification. While not your direct responsibility, understanding whether a token might be deemed a security can impact its availability on US-regulated platforms and future regulatory scrutiny.
• Due Diligence: Research any platform you use for trading, lending, or staking. Ensure they are compliant with relevant US regulations, particularly regarding KYC/AML.

For Businesses:

• Compliance is Paramount: Failure to comply with federal and state regulations can result in severe penalties, including hefty fines and criminal charges.
• MSB Registration & AML Program: If your business deals with convertible virtual currencies, assess if you qualify as an MSB and register with FinCEN. Implement a robust, risk-based AML/CFT program that includes strong KYC procedures, ongoing transaction monitoring, and SAR reporting.
• State-Specific Licensing: Identify and obtain all necessary state-specific licenses (like MTLs or New York’s BitLicense) for every jurisdiction in which you operate or serve customers. This often requires significant legal counsel and resources.
• Evolving Landscape: The regulatory environment is dynamic. Stay continuously updated on new legislation, agency guidance, and enforcement actions. Engaging with legal experts specializing in crypto regulation is highly advisable.
• Cybersecurity and Consumer Protection: Beyond regulatory compliance, robust cybersecurity measures and consumer protection practices are essential to build trust and mitigate risks in this nascent industry.

The US crypto regulatory framework, while challenging, is slowly moving towards greater clarity. Proposed legislation and evolving agency guidance aim to provide a more defined path. However, until a comprehensive federal framework is in place, investors and businesses alike must remain vigilant, prioritize compliance, and seek professional advice to navigate the complexities of the digital asset space safely and effectively.