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US Cryptocurrency Regulation: What You Need to Know

Disclaimer

This guide is for informational purposes only and does not constitute legal or tax advice. Cryptocurrency regulations vary by jurisdiction and change frequently. Consult a qualified professional for advice specific to your situation.

The United States has the most complex cryptocurrency regulatory environment in the world. Unlike jurisdictions such as the European Union (which enacted the comprehensive MiCA framework) or South Korea (which centralized oversight under the FSC), the US relies on a multi-agency approach where several federal regulators, state regulators, and self-regulatory organizations all claim authority over different aspects of the crypto market.

This complexity has been a source of frustration for the industry, but it also reflects the depth of the US financial system. This guide maps the regulatory landscape as of 2026, explains which agencies do what, and provides practical guidance for compliance.

The Regulatory Agencies​

Securities and Exchange Commission (SEC)​

The SEC has been the most active and controversial regulator in the crypto space. Its jurisdiction covers any crypto asset that qualifies as a "security" under US law.

The Howey Test

The SEC determines whether a crypto asset is a security using the Howey Test, derived from the 1946 Supreme Court case SEC v. W.J. Howey Co. An asset is a security if it involves:

  1. An investment of money
  2. In a common enterprise
  3. With an expectation of profits
  4. Derived primarily from the efforts of others

If a crypto asset meets all four prongs, it is a security and must be registered with the SEC or qualify for an exemption. The issuer, any exchange listing it, and anyone offering or selling it must comply with securities laws.

SEC Enforcement History

The SEC's approach to crypto has been described as "regulation by enforcement" --- establishing rules through individual enforcement actions rather than comprehensive rulemaking. Key actions include:

  • Ripple (XRP): The SEC sued Ripple Labs in 2020, alleging XRP was an unregistered security. The case produced a mixed ruling in 2023, with the court finding that institutional sales were securities transactions but secondary market sales were not. The case was eventually settled but left significant legal ambiguity.
  • Exchanges: The SEC has taken action against major exchanges, alleging they operated as unregistered securities exchanges and/or offered unregistered securities.
  • Staking services: The SEC has targeted crypto staking-as-a-service offerings as unregistered securities.
  • NFTs: Selective enforcement actions against NFT projects that the SEC deemed functioned as securities.

Spot Bitcoin and Ethereum ETFs

A pivotal moment in US crypto regulation came with the approval of spot Bitcoin ETFs in January 2024, followed by spot Ethereum ETFs later that year. These approvals:

  • Provided regulated investment vehicles for institutional and retail investors.
  • Implicitly acknowledged Bitcoin and Ethereum as commodities (since ETFs are structured around the underlying asset's commodity status).
  • Generated tens of billions of dollars in inflows, significantly expanding the mainstream accessibility of crypto exposure.

Commodity Futures Trading Commission (CFTC)​

The CFTC has jurisdiction over crypto assets classified as commodities and over derivatives (futures, options, swaps) based on crypto assets.

  • The CFTC has consistently maintained that Bitcoin is a commodity, and this position has been reinforced by multiple court decisions.
  • Ethereum has also been treated as a commodity by the CFTC, a position solidified by the approval of Ether futures and spot ETFs.
  • The CFTC regulates crypto derivatives exchanges (like CME Group's Bitcoin and Ether futures) and has enforcement authority over fraud and manipulation in commodity spot markets.
  • The CFTC has brought enforcement actions against unregistered crypto derivatives platforms and individuals engaged in market manipulation.

The SEC-CFTC Jurisdictional Divide​

The fundamental tension in US crypto regulation is determining which assets are securities (SEC jurisdiction) and which are commodities (CFTC jurisdiction). Legislative efforts to clarify this divide have been a major focus:

ClassificationRegulatorExamplesKey Implications
SecuritySECMost ICO/IEO tokens, some DeFi tokensRegistration required, exchange listing restrictions, disclosure obligations
CommodityCFTCBitcoin, EthereumLighter-touch regulation, derivatives market oversight
Payment/CurrencyFinCENStablecoins (for AML purposes)AML/KYC compliance, money transmitter registration

Landmark Legislation: The FIT21 Act and Its Successors​

Congressional efforts to establish clear jurisdictional boundaries gained momentum with the Financial Innovation and Technology for the 21st Century Act (FIT21), which passed the House in 2024. Subsequent legislative developments in 2025 refined and expanded on FIT21's framework:

Key legislative principles:

  • Decentralization test: If a blockchain network is "sufficiently decentralized" (no single entity controls more than 20% of tokens or has unilateral control over the network), its associated token is treated as a commodity and falls under CFTC jurisdiction.
  • Transition pathway: Tokens that start as securities (e.g., sold through fundraising) can transition to commodity status as their network decentralizes.
  • Dual registration: Exchanges can register with both the SEC and CFTC to offer both securities and commodity tokens.
  • Consumer protections: Mandatory disclosure, custody requirements, and conflict-of-interest rules for all regulated entities.

Internal Revenue Service (IRS)​

The IRS treats cryptocurrency as "property" for federal tax purposes, a classification established in IRS Notice 2014-21 and expanded through subsequent guidance. Key implications:

  • Every disposal of cryptocurrency (sale, exchange, use for purchases) is a taxable event that may result in a capital gain or loss.
  • Mining and staking rewards are treated as ordinary income at the time of receipt.
  • Airdrops are taxable as ordinary income at fair market value when received.
  • The IRS has invested heavily in blockchain analytics and third-party reporting to identify non-compliance.

Starting from tax year 2025, Form 1099-DA (Digital Asset) is being phased in, requiring centralized exchanges and brokers to report customer transactions directly to the IRS --- mirroring the 1099-B reporting used for traditional securities.

For comprehensive tax guidance, see our Cryptocurrency Tax Guide.

Financial Crimes Enforcement Network (FinCEN)​

FinCEN, a bureau of the US Treasury Department, oversees anti-money laundering (AML) and combating the financing of terrorism (CFT) for crypto:

  • Crypto exchanges are classified as Money Services Businesses (MSBs) and must register with FinCEN.
  • MSBs must implement AML programs, conduct customer due diligence (KYC), and file Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs).
  • FinCEN has proposed and implemented rules extending the Travel Rule to crypto transactions, requiring information sharing between institutions for transfers above $3,000.
  • FinCEN has also proposed rules related to self-hosted (self-custody) wallets, though these have been controversial and implementation has been debated.

Office of the Comptroller of the Currency (OCC)​

The OCC regulates national banks and has issued guidance allowing banks to:

  • Provide cryptocurrency custody services to customers.
  • Hold stablecoin reserves.
  • Participate in blockchain networks as validator nodes.

This guidance was significant because it opened the door for traditional banks to offer crypto services, though many banks have been cautious in adopting these capabilities.

Office of Foreign Assets Control (OFAC)​

OFAC, another Treasury bureau, administers sanctions programs and has applied them to crypto:

  • Sanctioned crypto addresses are published on the Specially Designated Nationals (SDN) list.
  • US persons are prohibited from transacting with sanctioned addresses.
  • OFAC sanctioned the Tornado Cash smart contract in 2022, raising fundamental questions about whether code can be sanctioned. This action was challenged in court, with mixed results.
  • Compliance with OFAC sanctions is critical for exchanges, DeFi protocols with US users, and any US-based crypto activity.

Stablecoin Regulation​

Stablecoin regulation has been a priority for US lawmakers, driven by concerns about systemic risk, consumer protection, and the potential impact on monetary policy.

Key Provisions of Stablecoin Legislation​

Stablecoin legislation developed through 2024-2025 established:

  • Issuer requirements: Stablecoin issuers must be chartered as banks, trust companies, or obtain a new federal stablecoin license.
  • Reserve requirements: Stablecoins must be backed 1:1 by high-quality liquid assets (cash, Treasury securities, or equivalent). Algorithmic stablecoins that rely on complex mechanisms rather than direct reserves face stricter scrutiny.
  • Audit requirements: Regular third-party attestations of reserve composition and adequacy.
  • State vs. federal: Both state-chartered and federally-chartered issuers can operate, but federal minimum standards apply.
  • Offshore issuers: Foreign-issued stablecoins (like Tether's USDT) face restrictions if they do not comply with US standards but are widely used by US persons.

Impact on the Market​

Stablecoin regulation has had significant market effects:

  • USDC (issued by Circle) has positioned itself as the "regulatory compliant" stablecoin in the US market.
  • USDT (issued by Tether) faces ongoing questions about its reserve composition and offshore regulatory status.
  • Banks and traditional financial institutions are exploring issuing their own stablecoins or tokenized deposits.
  • The relationship between private stablecoins and a potential US CBDC (Digital Dollar) remains a live policy discussion.

State-Level Regulation​

US states add another layer of regulatory complexity. Key state-level developments include:

New York: BitLicense​

New York's BitLicense, introduced in 2015 by the Department of Financial Services (NYDFS), was the first state-level crypto licensing regime:

  • Any company offering crypto services to New York residents must obtain a BitLicense.
  • Requirements include capital reserves, cybersecurity programs, AML compliance, and consumer protection measures.
  • The BitLicense has been criticized as overly burdensome, driving some crypto companies to exclude New York residents from their services.
  • However, holding a BitLicense is seen as a mark of regulatory credibility.

Wyoming: The Crypto-Friendly State​

Wyoming has enacted the most comprehensive body of crypto-friendly legislation in the US:

  • Special Purpose Depository Institutions (SPDIs) --- state-chartered banks that can custody crypto assets.
  • DAO legislation recognizing decentralized autonomous organizations as legal entities.
  • Exemptions for certain utility tokens from securities regulation.
  • Property rights for digital assets clearly defined in state law.
  • Kraken received the first SPDI charter (Kraken Financial) in 2020.

Other Notable States​

StateApproachKey Features
TexasCrypto-friendlyClear right to self-custody; supportive of mining
FloridaModerateMoney transmitter law applies to crypto; growing adoption
CaliforniaEvolvingDigital Financial Assets Law (DFAL) provides licensing framework
ColoradoProgressiveAccepts crypto for state tax payments; crypto-friendly regulation

DeFi Regulation​

Decentralized finance presents unique regulatory challenges in the US:

Current Landscape​

  • SEC approach: The SEC has argued that many DeFi protocols, despite being decentralized, involve securities transactions and that front-end operators or developers may be liable.
  • CFTC approach: The CFTC has brought enforcement actions against DeFi protocols offering derivatives without registration.
  • Treasury approach: FinCEN and OFAC have considered how to apply AML and sanctions rules to decentralized protocols.

Key Questions​

Several fundamental questions about DeFi regulation remain unresolved:

  1. Who is the "responsible party"? In a decentralized protocol, identifying the entity responsible for compliance is challenging. Is it the developers, the DAO governance token holders, the front-end operators, or the liquidity providers?
  2. Can smart contracts be regulated? The Tornado Cash sanctions raised this question. Courts have given mixed signals about whether immutable smart contracts can be subject to legal requirements.
  3. Front-end vs. protocol: Some regulatory approaches distinguish between the user-facing front-end (which can be regulated) and the underlying protocol (which may be code running autonomously on a blockchain).
  4. Non-US users: Can a protocol with no US entity and no US-targeted marketing be regulated by US authorities if US persons choose to use it?

Self-Custody Rights​

Self-custody --- holding your own crypto assets without an intermediary --- is a fundamental principle of cryptocurrency. In the US:

  • No prohibition: There is no federal law prohibiting individuals from holding crypto in self-custody wallets.
  • Legislative protection: The "Keep Your Coins" Act and similar legislative proposals have sought to explicitly protect the right to self-custody.
  • FinCEN considerations: Proposed rules requiring identity verification for self-custody wallet transactions have been debated but not fully implemented as of 2026.
  • Practical reality: While exchanges may require verification when you withdraw to a self-custody wallet or deposit from one, the act of holding crypto in your own wallet is not regulated.

Understanding self-custody is essential for anyone serious about cryptocurrency security. Our Seed Phrase Guide and Wallet Types guide provide practical guidance.

Practical Compliance Guide for US Residents​

For Individual Holders and Traders​

  1. Track every transaction: Every trade, sale, swap, and use of crypto for purchases is a potentially taxable event. Use a crypto tax tracking tool or maintain detailed records. See our Crypto Tax Guide.

  2. Use regulated exchanges: US-based, registered exchanges provide the clearest legal standing and will issue Form 1099-DA for tax reporting.

  3. Report foreign accounts: If you hold crypto on an exchange located outside the US with a value exceeding $10,000 at any point during the year, you may need to file an FBAR (Foreign Bank and Financial Accounts Report) and/or Form 8938 (FATCA).

  4. Understand state rules: If you live in or provide services to residents of states like New York, ensure that the exchanges and services you use are properly licensed.

  5. Preserve self-custody security: While self-custody is your right, securing your assets is your responsibility. Use hardware wallets and proper seed phrase backup.

For Businesses and Projects​

  1. Determine your token's classification: Before issuing or listing a token, obtain legal advice on whether it is a security, commodity, or something else.

  2. Register appropriately: Depending on your activities, you may need to register with the SEC, CFTC, FinCEN, state regulators, or some combination.

  3. Implement AML/KYC: If you operate any service that transfers or custodies crypto for others, you must implement robust AML/KYC programs.

  4. OFAC screening: Screen all addresses and counterparties against the OFAC SDN list before transacting.

  5. State-by-state compliance: Consider where your users are located. Different states have different requirements, and operating without proper state licenses can result in enforcement action.

US regulators have significant enforcement resources and have used them actively:

  • SEC enforcement: Dozens of enforcement actions annually against unregistered securities offerings, unregistered exchanges, and market manipulation.
  • CFTC enforcement: Actions against unregistered derivatives platforms and market manipulation in commodity markets.
  • DOJ criminal prosecutions: The Department of Justice has prosecuted crypto fraud, money laundering, and sanctions evasion, including high-profile cases against exchange executives.
  • IRS enforcement: The IRS has issued John Doe summons to major exchanges to identify non-reporting taxpayers and has pursued criminal tax evasion cases related to crypto.
SafeSeed Tool

Self-custody is a recognized right in the United States and is the foundation of your sovereignty over your digital assets. SafeSeed provides open-source, client-side tools for generating seed phrases, creating paper wallets, and managing your keys --- all without transmitting any private data. Try the Seed Phrase Generator.

FAQ​

Yes. Owning, buying, selling, and using cryptocurrency is legal in the United States. There is no federal ban on crypto. However, various activities (operating an exchange, issuing tokens, providing custody) are heavily regulated and may require federal and/or state licenses.

Which agency regulates cryptocurrency in the US?​

Multiple agencies share jurisdiction. The SEC oversees crypto securities, the CFTC oversees crypto commodities and derivatives, FinCEN handles AML/KYC for money services businesses, the IRS handles taxation, and state regulators impose additional requirements. Determining which agency has authority often depends on how a specific crypto asset is classified.

Is Bitcoin a security or a commodity?​

Bitcoin is widely recognized as a commodity in the US. Both the CFTC and the SEC have stated that Bitcoin is not a security. The approval of spot Bitcoin ETFs reinforced this classification. Most other major cryptocurrencies' classifications are determined on a case-by-case basis.

Do I have to pay taxes on cryptocurrency?​

Yes. The IRS treats crypto as property. Every sale, exchange, trade, or use of crypto for purchases is a potentially taxable event. You must report capital gains and losses on your tax return. Mining and staking income is taxable as ordinary income. Starting with the 2025 tax year, exchanges are required to issue Form 1099-DA reporting your transactions.

Can the government seize my cryptocurrency?​

Federal law enforcement agencies can seize cryptocurrency through legal processes such as forfeiture proceedings, court orders, and seizure warrants. This typically occurs in connection with criminal investigations. Crypto held in self-custody wallets is more difficult to seize than crypto held on exchanges, but it is not immune from legal process if law enforcement has the legal authority and the technical capability to execute a seizure.

Yes. There is no federal law prohibiting self-custody of cryptocurrency. Several legislative proposals have explicitly sought to protect this right. While FinCEN has explored rules around self-custody wallet transactions, holding your own crypto in a self-custody wallet remains fully legal. Exchanges may require additional verification for withdrawals to self-custody wallets, but this is an exchange-level compliance measure, not a restriction on self-custody itself.

What is the BitLicense?​

The BitLicense is a business license for cryptocurrency activities issued by the New York Department of Financial Services (NYDFS). Any company offering crypto services to New York residents must obtain one. It requires significant compliance infrastructure, including capital requirements, cybersecurity programs, and AML measures. Some companies choose to exclude New York residents rather than obtain a BitLicense.

How are stablecoins regulated in the US?​

Stablecoin legislation requires issuers to be chartered as banks, trust companies, or to obtain a federal stablecoin license. Stablecoins must be backed 1:1 by high-quality liquid assets and are subject to regular third-party audits. State-chartered and federally-chartered issuers can both operate, but federal minimum standards apply. The regulatory treatment of foreign-issued stablecoins used by US persons remains an evolving area.