Guide to Laws and Regulations of Crypto Currencies in the United States

With the rapid growth of cryptocurrencies and digital coins, including Bitcoin, Ethereum, and others, 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.

How is crypto regulated in the U.S.?

The U.S. government primarily focuses on regulating crypto platforms, such as Coinbase and Binance, rather than the cryptocurrencies themselves. In addition, individuals who own crypto and digital assets also have certain obligations to report to the IRS and pay taxes on any earnings. These reports are also provided to the IRS by the platforms. See our Guide to What Transactions Must Be Reported to the IRS?

Which agencies are involved in regulating crypto?

Several U.S. federal agencies are involved in regulating crypto, including:

  • Securities and Exchange Commission (SEC): The SEC plays a crucial role in regulating cryptocurrencies, especially when digital assets are classified as securities. The ongoing debate over whether cryptocurrencies should be considered securities has led to enforcement actions against companies like Ripple, Coinbase, and Binance.
  • Commodity Futures Trading Commission (CFTC): If cryptocurrencies are deemed commodities (similar to crude oil or natural gas), the CFTC becomes their primary regulator. The CFTC oversees currency trading and would cover crypto trading under this classification.
  • Financial Crimes Enforcement Network (FinCEN): Cryptocurrency exchanges fall under the regulatory scope of the Bank Secrecy Act (BSA). This means that exchange service providers must register with FinCEN, implement anti-money laundering (AML) and counter-financing of terrorism (CFT) programs, maintain records, and submit reports to authorities.
  • Internal Revenue Service (IRS): IRS requires certain reporting of crypto transactions.

What are the Know Your Customer (KYC) and Anti-Money Laundering (AML) rules?

U.S. cryptocurrency exchanges have long been subject to Know Your Customer laws and Anti-Money Laundering policies. These generally require exchanges to collect certain information about users and customers, including name, address, and social security number.

These measures aim to prevent illicit activities and protect consumers. The U.S. government actively addresses cybercrime in court and confiscates virtual currencies suspected of being acquired through criminal activities, including those involving crypto exchange platforms.

What is the Travel Rule and how does it apply to crypto?

The Travel Rule requires financial institutions to communicate with each other when users send funds from one financial institution to another. In particular, it requires the institutions to provide information about the transmitter and the recipient. It applies to crypto transactions as well as traditional financial transactions.

Further Resources

See our Guide to Finance and Banking Regulations

If you have questions about this fast-moving area of law, talk to a securities lawyer or tax lawyer.

Photo credit: Photo by Traxer on Unsplash

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