An Overview of U.S. Government Cryptocurrency Regulation

E-Commerce Lawyer

With the rapid growth of cryptocurrencies, governments around the world are scrambling to create regulations that protect investors, prevent illegal activities, and maintain financial stability. In the United States, the regulatory landscape is complex, involving several federal agencies and a patchwork of state-level laws. This blog post will provide an overview of the U.S. government cryptocurrency regulation, discuss the roles of key regulatory agencies, and compare the U.S. approach to that of other countries. Dive in to gain a deeper understanding of the intricate world of cryptocurrency regulation.

Short Summary

  • The U.S. government is carefully balancing consumer protection and digital currency technology by regulating crypto platforms, not cryptocurrencies themselves.
  • Money transmission laws require virtual currency exchanges to register as money transmitters while FinCEN regulations and Form 1040 reporting requirements must be adhered to for compliance with US tax laws.
  • The Biden administration is pushing for the development of a CBDC while international regulators are aiming to protect consumers from illicit uses of cryptocurrency through varying regulations across countries

U.S. Government’s Approach to Cryptocurrency Regulation

The U.S. government’s approach to cryptocurrency regulation mainly focuses on regulating crypto platforms rather than cryptocurrencies themselves. Several agencies are involved in this process, including the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Financial Crimes Enforcement Network (FinCEN). While many federal agencies and policymakers recognize the potential for digital currency technology to play an integral part in the U.S.’s future infrastructure, they also face the challenge of supporting the development of cryptocurrencies while restricting their illegal uses.

U.S. cryptocurrency exchanges have long been subject to Know Your Customer laws and anti-money laundering policies and procedures. The U.S. government has also increased its efforts to address cybercrime in court and confiscate virtual currencies suspected of being acquired through criminal activities, including those involving virtual currency exchange platforms. This complex landscape showcases the U.S. government’s careful balance between embracing innovation and ensuring consumer protection.

SEC’s Role in Crypto Regulation

The SEC plays a crucial role in regulating cryptocurrencies, particularly in cases where digital assets, including crypto assets, are classified as securities. The long-standing debate over whether cryptocurrencies should be classified as securities has persisted, with the SEC taking enforcement actions against companies like Ripple, Coinbase, and Binance.

SEC Chair Gary Gensler has stated that crypto platforms and lenders need to be regulated as stock exchanges. Only after this, they can be utilized as qualified custodians by investment advisors. This stance highlights the SEC’s emphasis on protecting investors and maintaining the integrity of the financial markets, while also recognizing the need to adapt to the evolving landscape of digital assets.

CFTC’s Involvement in Digital Assets

The CFTC oversees and regulates derivatives transactions involving cryptocurrencies, such as swaps, futures, and options. While the agency has full regulatory authority over derivatives transactions, its oversight of commodity cash markets, including spot commodity markets for cryptocurrencies, is limited.

In an effort to combat market manipulation, the CFTC has issued guidance on virtual currency derivatives, taken enforcement actions against firms engaging in manipulative practices, and proposed a rule to prohibit fraud and manipulation in virtual currency derivatives. This regulatory involvement demonstrates the CFTC’s commitment to ensuring the integrity of the crypto markets and protecting investors from fraudulent activities.

FINRA and Crypto Regulations

The Financial Industry Regulatory Authority (FINRA) plays a significant role in cryptocurrency regulation, particularly in enforcing existing regulations and monitoring the activities of professionals involved in cryptocurrency trades. FINRA oversees regulations related to cryptocurrency trading, ensuring that professionals adhere to the rules and investors are safeguarded from potential risks.

As part of its efforts to protect investors in the cryptocurrency market, FINRA enforces regulations and supervises professionals who engage in cryptocurrency trades. This regulatory enforcement demonstrates the importance of maintaining a transparent and secure trading environment for digital assets.

Anti-Money Laundering and Crypto Compliance

In addition to the regulatory efforts of agencies like the SEC and CFTC, the U.S. government addresses money laundering concerns in the crypto industry through the Bank Secrecy Act (BSA), the Anti-Money Laundering Act of 2020, and the Digital Asset Basic Act. The BSA requires virtual asset service providers, such as Money Services Businesses (MSBs), which include virtual currency exchanges and administrators of centralized repositories of virtual currency, to conduct comprehensive risk assessments and implement anti-money laundering (AML) programs based on the results of these assessments.

Digital currency transactions are considered a value that substitutes for currency under the Anti-Money Laundering Act of 2020. This classification necessitates that MSBs register with FinCEN and adhere to specific AML regulations, such as the formation of an AML program, submission of suspicious activity reports, and implementation of customer due diligence measures. These requirements aim to mitigate the risks associated with money laundering and other illegal activities in the cryptocurrency space.

Money Transmission Laws

Money transmission laws govern the movement of money, including virtual currency, from one individual or entity to another. To comply with these regulations, virtual currency exchanges must register as money transmitters. Exchanges such as Binance and Coinbase have acquired money transmission licenses in multiple states, including Minnesota. This shows the rise of digital currency exchange being legally accepted by governing bodies.

Under FinCEN’s regulations, a money transmitter is defined as an administrator or exchanger that either accepts and transmits convertible virtual currency, or buys or sells it. Certain limitations or exemptions may apply to certain persons. This regulatory framework ensures that virtual currency exchanges operate responsibly and transparently, while also addressing potential risks associated with money laundering and other illegal activities.

Reporting Requirements

Reporting requirements for cryptocurrency transactions under FinCEN regulations and the Report of Foreign Bank and Financial Accounts include virtual currencies as a type of reportable account. To comply with these requirements, individuals or businesses that own cryptocurrency must maintain detailed records of cryptocurrency purchases and sales, including the description of the amount and type of virtual currency sold, the date acquired, the date the virtual currency was sold, the amount of proceeds from the sale, the cost (or other basis), and the amount of the gain or loss.

In addition to FinCEN reporting requirements, ordinary income from virtual currency must be reported in accordance with Form 1040 or other relevant tax forms. Businesses may also be required to report digital asset transactions on Form 8300. Maintaining accurate records of all cryptocurrency transactions is essential for meeting tax obligations and ensuring compliance with regulatory requirements.

Tax Implications of Cryptocurrency Transactions

In the United States, cryptocurrency is classified as “property” for tax purposes, which has significant implications for individuals and businesses that own or trade digital assets. Owners of cryptocurrency must maintain detailed records of cryptocurrency purchases and sales, pay taxes on any gains made upon the sale of cryptocurrency for cash, pay taxes on any gains made upon the purchase of a good or service with cryptocurrency, and pay taxes on the fair market value of any mined cryptocurrency.

It is crucial for individuals and businesses to understand the tax implications of their cryptocurrency transactions and maintain accurate records to ensure compliance with tax laws. By staying informed and diligent, cryptocurrency owners can navigate the complex tax landscape and minimize potential issues with the Internal Revenue Service (IRS).

State-Level Cryptocurrency Regulations

Cryptocurrency regulations in the United States vary between states, showcasing the diverse approaches to digital assets at the state level. Exchanges like Binance and Coinbase maintain money transmission licenses in numerous states, and virtual currency is typically considered a commodity for income tax purposes. However, specific regulations can differ significantly from state to state.

For example, Maryland’s Office of the Commissioner of Financial Regulation considers the transmission of virtual currency to be subject to its money transmission regulations. In contrast, Texas does not require a license for the exchange or transfer of most virtual currencies, but trading in stablecoins or using a third-party exchanger does require a license as money transmission. Meanwhile, Hawaii has established the Digital Currency Innovation Lab to provide digital currency businesses with permission to determine the necessary licensing. These examples demonstrate the wide range of state-level approaches to cryptocurrency regulation in the United States.

The Push for a U.S. Central Bank Digital Currency (CBDC)

In recent years, there has been growing interest in the development of a U.S. Central Bank Digital Currency (CBDC). CBDCs differ from cryptocurrencies and digital or virtual currency in that they are centralized, issued, and potentially directly managed by central banks, as opposed to the decentralized nature of cryptocurrencies. The Biden administration perceives “significant advantages” from establishing a CBDC or a digital version of the U.S. dollar, and Federal Reserve Chairman Jerome Powell advocates for the release of a CBDC to reduce the need for alternative coin use in the nation.

A CBDC would provide some of the advantages associated with cryptocurrencies, such as expedited transactions, advancement, and financial inclusion, while also mitigating some of the risks, like instability, illegal activity, and energy-intensive mining, similar to stablecoins. The potential development of a U.S. CBDC showcases the government’s efforts to adapt to the rapidly evolving digital currency landscape while maintaining control over the nation’s monetary system.

Future Outlook for U.S. Cryptocurrency Regulation

The future outlook for U.S. cryptocurrency regulation is uncertain and continuously evolving. Ongoing discussions and actions by regulators and lawmakers could potentially shape the regulatory landscape, but the current crackdown on cryptocurrency has created a degree of uncertainty about the market’s future. It is imperative to stay up to date with the latest developments in U.S. cryptocurrency regulation to navigate this complex environment.

With the availability of cryptocurrencies through regulated entities and investment funds, the risks associated with this novel asset class can be reduced. As the cryptocurrency market continues to evolve and mature, it is likely that regulatory frameworks will adapt to address emerging challenges and opportunities. Staying informed about these changes will be essential for individuals and businesses operating in the cryptocurrency space.

International Comparison of Crypto Regulations

The U.S. approach to cryptocurrency regulation shares similarities and differences with other countries’ approaches. One common goal among regulators worldwide is to safeguard consumers and businesses from fraudulent activities and implement preventive measures to combat illicit crypto uses. However, the specific regulations and enforcement mechanisms can vary significantly between countries.

For example, Japan has adopted a progressive stance on crypto regulations, acknowledging cryptocurrencies as legitimate property under the Payment Services Act and requiring crypto exchanges to register with the Financial Services Agency. In contrast, India has yet to take a definitive stance on cryptocurrency regulation, neither legalizing nor penalizing its use. The United Kingdom, which is perceived to be similar to the U.S. in terms of crypto regulation, is also taking steps to address money laundering and fraud issues related to cryptocurrencies.

As the global cryptocurrency market continues to grow and evolve, it is essential for countries to learn from one another and collaborate on developing effective regulatory frameworks that balance innovation and consumer protection. By understanding the various approaches to cryptocurrency regulation around the world, individuals and businesses can better navigate the complex and ever-changing landscape of digital assets.


The world of cryptocurrency regulation is complex and ever-evolving, as governments and regulatory agencies grapple with balancing innovation, consumer protection, and financial stability. By understanding the U.S. government’s approach to cryptocurrency regulation, the roles of key regulatory agencies like the SEC, CFTC, and FINRA, and the differences and similarities between state-level and international regulations, individuals and businesses can better navigate the intricate world of digital assets. As the cryptocurrency market continues to evolve, staying informed about regulatory changes and developments will be essential for success in this dynamic and exciting space.

Frequently Asked Questions

Does the USA regulate cryptocurrency?

Yes, the USA does regulate cryptocurrency. It is regulated by several government agencies on a federal level and by local regulators on a state level.

If crypto is deemed a commodity, its primary U.S. regulator would be the Commodity Futures Trading Commission (CFTC).

Can the government legally regulate cryptocurrency?

Yes, the government can legally regulate cryptocurrency through sales regulations such as securities law and money transmission laws.

These regulations can help protect investors and consumers from fraud and other financial crimes. They can also help ensure that cryptocurrency is used responsibly and in accordance with the law.

Does the US government track cryptocurrency?

Yes, the US government does track cryptocurrency, as the IRS has requested crypto exchanges and platforms to report tax forms such as 1099-B and 1099-K. Additionally, some exchanges have received subpoenas ordering them to reveal certain user accounts.

What are the main U.S. government agencies involved in cryptocurrency regulation?

The U.S. government is actively involved in cryptocurrency regulation through agencies such as the SEC, CFTC, and FinCEN.

These agencies are responsible for monitoring and enforcing regulations related to cryptocurrency transactions and investments. They are also responsible for issuing guidance and providing resources to help investors understand the risks associated with investing in cryptocurrencies.

The SEC.

What are the tax implications of owning or trading cryptocurrencies in the United States?

In the United States, cryptocurrencies are classified as property for tax purposes, requiring individuals and businesses to maintain detailed records of transactions and pay taxes on gains from sale or use, as well as mining of cryptocurrencies.

This means that individuals and businesses must keep track of their cryptocurrency transactions and pay taxes on any gains they make from the sale or use of the cryptocurrency. This includes any profits made from mining cryptocurrencies.

Legal Disclaimer

The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. The content presented is not intended to be a substitute for professional legal, tax, or financial advice, nor should it be relied upon as such. Readers are encouraged to consult with their own attorney, CPA, and tax advisors to obtain specific guidance and advice tailored to their individual circumstances. No responsibility is assumed for any inaccuracies or errors in the information contained herein, and John Montague and Montague Law expressly disclaim any liability for any actions taken or not taken based on the information provided in this article.

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