Overview of regulations, how they’re regulated, key challenges, and more resources for legal professionals

The expansion of virtual currencies like Bitcoin and Ethereum has put U.S. regulators in a dilemma between encouraging innovation and safeguarding investors.

The expansion of virtual currencies like Bitcoin and Ethereum has put U.S. regulators in a dilemma between encouraging innovation and safeguarding investors.

This interest in cryptocurrency stems from the rise in technology worldwide, pushing financial boundaries and leaving open the possibility that cryptocurrencies may become the central element of the global economy.

The same impact and importance of the use of cryptocurrency in the U.S. has brought about the need to regulate it, yet 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.

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.

It 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 who are handling crypto with clear regulations, while others ban it entirely.

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 regulations vary and cover everything about how cryptocurrencies are to be created and traded, and how they interact with traditional financial systems. Well-defined rules can help the crypto market in the following ways:

How is cryptocurrency regulated in the U.S.?

As of 2025, there is no defined regulation used to regulate cryptocurrency in the U.S. 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 mainly 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, the