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Crypto regulation in the U.S. is one of the murkiest topics in the finance space. While the federal government has started to turn the wheels on developing new rules for the space, as of early 2023 it’s still something of a free-for-all.

While crypto has over the past decade grown considerably in both adoption and popularity, crypto rules and regulations have, conversely, not changed or evolved at the same pace.

In addition, there are differing rules in different countries, and there have been some notable changes and moves in regards to crypto regulation from some U.S. agencies — e.g. regarding the question of whether crypto is a commodity or a security.

It can be difficult to keep up with, but given the potential impact on crypto investors, it’s critical to try and understand what’s happening regarding crypto regulation at a high level.

Note: This article is only a high-level overview of crypto regulations. And, as crypto is not currently regulated (which is discussed below), it is highly volatile to invest in and comes with significant risk.

Background on US Crypto Regulations

The U.S. government, at various levels and through numerous agencies, makes decisions about how to regulate new or developing technology all the time — though it’s not always fast. The process can take years — for instance, we’re only now beginning to hear about potential rulemaking for tech like artificial intelligence (AI).

Regulation has been slow to come to blockchain technology, too, though it’s been around for many years now. It’s complex but can be applied in many industries, and cryptocurrencies are just one part of the broader usage possibilities of this technology.

Though a lack of crypto regulation has been appealing to many in the crypto space, it has its downsides, too. For example, it’s prevented some U.S. citizens from participating in new crypto offerings, and has also led some blockchain and crypto companies to set up shop outside of the country.

Although the U.S. has been slow to release comprehensive laws and regulations about cryptocurrencies, the Securities and Exchange Commission (SEC) has, in recent years, started to crack down on certain aspects of the crypto industry. That includes initial coin offerings (ICOs), and the agency has even gone after individuals in the space for insider trading.

But actions have mostly occurred on a case-by-case basis, and there is still a lack of an overall regulatory framework at the federal level that relates to crypto. That isn’t novel to crypto, though, as in the U.S., a regulatory landscape is typically created over time as issues arise.

Recommended: Understanding Different Types of Crypto

Current US Regulations

It’s very difficult to get a sense of the current state of U.S. crypto regulations, as there are many balls in the air. Though the Biden Administration did release a framework for regulating crypto in 2022, the implementation of new rules is still likely years away. As such, different agencies like the IRS, SEC, CFTC, and others, are taking different approaches to dealing with crypto, given a lack of unifying guidelines.

For investors, here’s where things currently stand.

Cryptocurrencies are currently viewed by the IRS as assets or property, which means that capital gains taxes apply. Crypto is not considered legal tender (a currency, in other words), but rather an asset like real estate, or shares in a company.

The SEC, through various actions, has determined that some cryptocurrencies can be considered securities. It’s unclear if its goal is to apply securities laws to the industry across the board, but if that does happen, it would affect everything from exchanges to ICOs to companies that develop crypto wallets.

There are numerous ongoing lawsuits involving crypto companies and the SEC as well, such as the case against the payment and exchange platform, Ripple (XRP).

Unlike the SEC, the Commodity Futures Trading Commission (CFTC), which governs some financial institutions, considers Ether (ETH), the second-most traded cryptocurrency, as a commodity, rather than a security. This stance, and the resulting regulations attached to it, would be more crypto-positive than the SEC’s position, because it would allow ETH to be traded on commodities markets.

This difference in how crypto is viewed among agencies (securities vs. commodities) has also created something of a turf war between the CFTC and SEC regarding financial regulation, which is ongoing.

Congress, which traditionally passes legislation, has introduced many bills related to cryptocurrency over the years. But it has yet to pass meaningful, expansive rules that other agencies and crypto companies can follow and use as guidelines. The wheels are turning, but again, as of early 2023, Congress has yet to create regulatory guidance or even clarity.

Future Regulations

As noted, the U.S. has been taking its time in solidifying cryptocurrency regulations, but that doesn’t mean there haven’t been, and aren’t, continued discussions on Capitol Hill concerning crypto.

The troubles experienced by the crypto markets for most of 2022, and the subsequent collapse of big crypto exchanges, may end up spurring action among Congressional leaders faster than anticipated.

The Challenge of Regulating Crypto

Although the ultimate shape and form that crypto regulation takes in the U.S. won’t please everyone, many companies and participants in the crypto space welcome it, as it will finally provide some clarity, and help them ensure they’re not doing anything illegal.

It’s important to remember that cryptocurrency technology is complex, and there are many factors to take into consideration. Unfortunately, the technology is changing very quickly and policymaking is generally very slow, which may result in regulations being passed that are already out of date or irrelevant.

Part of the delay is due to the fact that there isn’t a particular or single regulating body to pass and enforce cryptocurrency regulations. As mentioned, the SEC and the CFTC can step in if an exchange does something they deem illegal, but state-level laws actually apply to most money-transmitting operations. Congress could potentially form a new regulatory body for cryptocurrencies.

At this point, we simply don’t know what will happen, and current regulation of the crypto market appears to rest in the hands of agencies like the SEC and CFTC, while everyone waits on Congress to act.

Also, the way that cryptocurrencies are currently taxed could lead to an investor seeing a large tax bill. Navigating crypto taxes requires a more in-depth level of attention and knowledge than many investors have, as they tend to think of their holdings as currency, rather than property.

This is another area in which investors could use clarity and guidance.

Stablecoin Regulations

Stablecoins are cryptos that maintain a fixed value and often function like fiat currencies. They’re typically pegged to fiat currencies, too, like the U.S. dollar, which means they’re often the subject of special considerations when discussing regulation.

Currently, stablecoins are not subject to special regulations, but may be among the first to become regulated or subject to new rules in coming years. As of early 2023, a new U.S. House of Representatives subcommittee on digital assets and financial technology has said that working out stablecoin regulations was at the top of their to-do list — with the idea of tinkering with the framework that could eventually regulate the entire space.

Crypto ETF Regulations

Exchange-traded funds, or ETFs, are a common investing tool, and yes, there is such a thing as a crypto ETF. These ETFs offer exposure to price movements of certain cryptos, but not cryptos themselves, as the SEC has not given them the official green light to begin trading.

That said, if you want to invest in a crypto ETF, there are ways to do it, but the ETFs will track crypto-exposed or adjacent companies, rather than the underlying crypto itself.

Cryptocurrency Tax Evasion

Tax evasion is when you fail to pay your taxes or otherwise try to deceive the IRS regarding any potential tax liabilities you have. And given that crypto investing can and will produce a tax liability, investors need to know that they could be charged with tax evasion if they don’t follow the rules.

Generally speaking, investors will be on the hook for capital gains taxes as related to crypto investing. The tax liability is triggered when they sell crypto — at that point, they bought the crypto at one price and sold it at another, creating a gain or a loss. They will owe taxes on any gain, and the amount they owe will depend on numerous other factors.

But again, many crypto investors may overlook their tax liabilities, which could lead to problems down the road. The IRS has, until this point, given crypto investors a lot of leeway with their taxes, but that could change in the coming years.

Global Cryptocurrency Regulations

There is currently no global regulation standard for Bitcoin and other cryptocurrencies. Regulations, instead, are handled individually by each nation. There has been some coordination on the international level, however, to stop money laundering and other illegal activity.

One example: In June 2019, the Financial Action Task Force (FATF) released regulations requiring virtual asset service providers, which includes cryptocurrency companies in more than 200 countries, to verify the identities of anyone sending more than $1,000 in a transaction as a part of anti-money laundering rules framework. Exchanges and ICOs, which may operate in other countries. previously had to comply with certain “know your customer” (KYC) rules, needed to adjust to the new guidelines.

In the interim as well, members of G-20 (a group of leading international countries and economies) have debated the future of crypto and how to regulate it. Even so, each country is taking its own approach to crypto, with some outright banning it (like China), with others partially banning it (Russia, India, Vietnam).

Crypto Regulations in Other Countries

Again, each country has its rules regarding crypto. And over time, broader rules are developing and guidelines are coming together. Some countries have even launched their own digital currencies through their central banks — called central bank digital currencies (CBDCs).

In 2018, Malta became the first country to release a comprehensive framework for the use of cryptocurrencies. Under that framework, businesses need to acquire certifications, go through specific processes to run ICOs, and more.

Malta set something of a precedent with its guidelines, and other countries have followed suit in recent years. Nations like Japan, Australia, and more have since issued their own rules and regulations to help mold their domestic crypto markets, which often include requiring businesses to get licenses or authorizations to operate in the crypto sphere.

Others, however, have gone a different route, banning crypto outright. China is the largest country to do so to this point. Similarly, when Ecuador attempted to launch their own cryptocurrency, they banned others to eliminate competition — a decision which may be revisited in the future.

As of February 2023, there are 132 countries where Bitcoin use or trading is unrestricted, and a handful (mostly in Asia) where it is illegal or restricted.

Canadian Crypto Regulations

Similar to the U.S., crypto rules and regulations in Canada are still taking shape. Like in the U.S., Canadian regulators do not consider crypto to be legal tender or fiat currency, and crypto is taxed similar to commodities.

There are scenarios in which Canadian regulators consider crypto to be a security, but it’s typically done on a case-by-case basis. Further, crypto exchanges or trading platforms need to register with respective provinces, and crypto investment companies likewise need to register with the government. It’s also worth noting that there are many crypto ETFs that trade on the Toronto Stock Exchange.

EU Crypto Regulations

Crypto legality is left up to individual countries that comprise the European Union (EU), but it is mostly legal. There are varying tax levels, too, and some broader EU anti-money laundering rules do dictate how some countries are required to regulate their specific crypto markets.

There is new legislation in the pipeline, too. The Market in Crypto-Assets (MiCA) rules, which will introduce new crypto regulations to all 27 EU members, are expected to become law at some point in 2023.

Australian Crypto Regulations

Australian crypto regulations deem crypto property, the same as the U.S. Exchanges also need to register with the country’s government and follow existing rules and guidelines. There are also rules regarding ICOs, and interestingly, the Australian government banned exchanges from offering privacy coins. Similar to most other countries, too, Australia has more regulations cooking, though it’s unclear when or if they’ll be made law.

Pros and Cons of Crypto Regulation for Investors

Rules and regulations sound like they’re designed to kill the crypto party, but they can have upsides and downsides for investors.

Pros of Crypto Regulation

Increased Stability

The crypto markets are notoriously volatile, and regulation could help smooth things out for investors.

More regulations may also make it possible for larger funds, banks, and other established financial players to get involved. However, more regulations may cause certain cryptocurrency users to move away from exchanges and toward peer-to-peer transactions in order to keep the privacy characteristics intact.

More Confidence from Investors

Some consumers have not invested in cryptocurrencies because of the fear of crypto scams and the halo of uncertainty around the space, so it’s possible that regulations will encourage them to get involved.

Making the Crypto Space Safer

Many exchanges and ICOs have turned out to be scams and have been vulnerable to hackers. Regulations may not have prevented all of those financial losses, but they could have helped with some. Business requirements such as insurance, cybersecurity requirements, and audits can all be positive for the industry.

Cons of Crypto Regulation

Loss of Privacy and Anonymity

Privacy is one of the overarching principles of cryptocurrencies, and is nearly impossible to regulate. Governments may want to be able to track cryptocurrency transactions in order to prevent crime, but also so that they can collect taxes.

Policymakers can require that exchanges take users’ information, but you don’t necessarily need to go through an exchange to use cryptocurrencies.

US Investors Could Be Shut Out of Some Market Elements

Many cryptocurrencies, such as Bitcoin, don’t have a central authority or founder, so there isn’t any business or team that can be regulated or shut down. Certain privacy coins may be at risk if regulators attempt to require identification for all transactions.

Unfortunately for U.S. investors, the lack of legal clarity has caused some exchanges and businesses to base themselves in other nations and exclude U.S. participation. U.S. customers have not been able to invest in certain ICOs for this reason.

Accreditation May Be Required for ICOs

In certain circumstances, the U.S. only allows accredited investors to participate in investments — like how accredited investors can take part in certain IPO private placements. This may come to the crypto market, too, and if certain thresholds were required for ICOs, for example, it could stymie the growth of the industry and would block many would-be investors from participating.

Pros and Cons of Crypto Regulation
Pros	Cons
Stability	Loss of privacy and anonymity
Investor confidence	U.S. investors could get shut out of some crypto market elements
Safer crypto markets	Possible need for accreditation for investors

How Do Regulations Affect You as an Investor?

Currently, as a U.S. investor you can buy, sell, or trade cryptocurrencies on numerous exchanges and investment platforms. That could change, depending on how the government chooses to regulate crypto. It’s really all up in the air.

But know this: Regulations can have a huge effect on investors. Sometimes it’s positive, sometimes it’s negative — it’s often a mix of both.

Changes to how crypto is taxed could spur a host of different investing and crypto tax-loss harvesting strategies, for one. And increased enforcement could chase some investors out of the crypto space all together. Further, changes to ICO rules could also complicate things.

Changes to how crypto is classified (a security, a commodity, or something else entirely) could also have big ramifications. It could change how crypto is traded, who or what is allowed to facilitate those trades, when they can be done, and more. Again, it’s hard to speculate (and probably wise not to) since we simply don’t know what might happen, and what the fallout could be.

The Takeaway

There’s no getting around it: Crypto is at a critical period in its history, and it’s hard to make heads or tails of the rules and regulations surrounding it. As it stands in the U.S. the space is largely unregulated — but some agencies are debating new rules, and Congress and the White House have also started to ramp up their work on regulatory framework.

For investors, a good rule of thumb is to do your best to follow the rules as you understand them, stick to known exchanges and cryptos, and keep records. Also, don’t forget to pay your crypto tax liabilities.

FAQ

Are cryptocurrencies regulated at all?

To a degree, yes, but it’s hard to say how, exactly, and by whom. While there still are no federal guidelines or regulations put into place by Congress, some agencies like the SEC and CFTC are regulating certain cryptos.

Who regulates cryptocurrencies?

Currently, agencies such as the SEC and CFTC are doing the lion’s share of crypto regulation in the U.S., although neither exactly has crypto within their respective purviews. That could change, however, if wider crypto regulations are adopted.

Is Bitcoin regulated? If so, how?

Bitcoin is not regulated, at least not in any cohesive or comprehensive manner. It is possible that investors could still run afoul of regulatory agencies, though, like the IRS, SEC, or CFTC.

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Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

²Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount		Bonus Payout
Low	High
$50	$99.99	$10
$100	$499.99	$15
$500	$4,999.99	$50
$5,000+		$100

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