Back to Analyses

United States of America

Retail_Trading_Status

Allowed-Regulated Unknown
Edit
Analysis ID
#249
Version
Archived
Created
2025-04-13 09:02
Workflow Stage
Live

Executive Summary

In the United States, retail cryptocurrency trading is legally permitted but heavily regulated by various federal agencies such as FinCEN, SEC, CFTC, and the IRS, as well as state-level regulations. Intermediaries like exchanges must comply with AML/KYC requirements and register with FinCEN as Money Services Businesses (MSBs). The SEC applies securities regulations to assets meeting the Howey Test, while the CFTC classifies Bitcoin and Ether as commodities. Cryptocurrencies are treated as property for tax purposes by the IRS, and brokers must report digital asset sales starting in 2025.

Key Pillars

The primary regulator includes agencies such as FinCEN, SEC, CFTC, and IRS. FinCEN applies the Bank Secrecy Act (BSA) to cryptocurrency activities, requiring exchanges to register as MSBs and comply with AML/KYC regulations. The SEC regulates assets that qualify as securities, while the CFTC classifies Bitcoin and Ether as commodities. Licensing or registration requirements vary by state, with some states requiring specific licenses for money transmission or virtual currency business activities.

Landmark Laws

FIT21 Act: Passed by the House in 2024, aimed at creating a more comprehensive and clear framework for digital assets. Bank Secrecy Act (BSA): Applied by FinCEN to cryptocurrency activities, requiring MSBs to implement AML programs and conduct KYC checks. IRS Notice 2014-21: Establishes the treatment of cryptocurrency as property for federal tax purposes.

Considerations

Cryptocurrencies are classified as property for federal tax purposes by the IRS, leading to taxable events upon buying, selling, or exchanging them; gains are taxed at short-term or long-term capital gains rates, and income from mining or staking is taxed as ordinary income. The IRS requires crypto brokers to report users' digital asset sales starting in 2025. Regulators have raised concerns about illicit activities like money laundering and terrorist financing. Operational challenges include navigating the complex regulatory framework involving federal agencies and state-specific rules.

Notes

The regulatory landscape is constantly evolving with ongoing discussions and legislative efforts aimed at creating a more comprehensive framework. Recent administrative changes signal potential shifts in regulatory approaches, including the establishment of task forces to develop clearer guidelines. There are complexities arising from the involvement of multiple federal agencies and state-specific regulations. Starting in 2025, crypto brokers must report users' digital asset sales to the IRS via Form 1099-DA.

Detailed Explanation

In the United States, individual citizens and residents are legally permitted to buy, sell, and hold cryptocurrencies; however, this activity is regulated by multiple federal and state agencies, primarily FinCEN, SEC, CFTC, and the IRS. FinCEN applies the Bank Secrecy Act (BSA) to cryptocurrency activities, classifying entities facilitating the exchange or transmission of convertible virtual currencies (CVCs) as Money Services Businesses (MSBs). As MSBs, these platforms must register with FinCEN, implement robust AML programs, conduct KYC checks, monitor transactions, and report suspicious activities (SARs) and large currency transactions (CTRs, potentially applicable to crypto transactions over $10,000 under proposed rules). The SEC regulates digital assets that qualify as 'securities' under the Howey Test, requiring platforms trading these assets to register as securities exchanges or alternative trading systems (ATS), and issuers to register the offerings or qualify for an exemption; recent developments include the approval of spot Bitcoin and Ethereum Exchange-Traded Funds (ETFs). The CFTC classifies certain established cryptocurrencies, notably Bitcoin and Ether, as commodities and regulates derivatives markets based on these commodities, exercising enforcement authority against fraud and manipulation in the underlying spot commodity markets. The IRS treats cryptocurrencies as property for federal tax purposes, requiring taxpayers to report capital gains or losses on their transactions; starting in 2025, crypto brokers are required to report users' digital asset sales to the IRS via Form 1099-DA. Many states have their own regulations, including specific licenses for money transmission or virtual currency business activities (e.g., New York's BitLicense) and the application of state securities regulators ('Blue Sky' laws). The regulatory environment is dynamic, with ongoing discussions and legislative efforts at the federal level (e.g., the FIT21 Act passed by the House in 2024, various Executive Orders, and proposed rulemakings by agencies like FinCEN) aimed at creating a more comprehensive and clear framework for digital assets, addressing stablecoins, market structure, and consumer protection. Recent administrative changes have also signaled potential shifts in regulatory approaches, with task forces being established to develop clearer guidelines. Multiple sources confirm this landscape, with KYC Hub noting the complexity and the need for businesses to understand AML, KYC, and tax reporting rules, Trulioo emphasizing mandatory AML and KYC for exchanges, and InnReg highlighting FinCEN's broad regulatory scope.

Summary Points

## Retail Cryptocurrency Trading Status in the United States of America (as of April 13, 2025)

**Overall Status:** Allowed-Regulated

### I. Key Regulatory Bodies and Their Roles

*   **Financial Crimes Enforcement Network (FinCEN):**
    *   Bureau of the U.S. Department of the Treasury.
    *   Applies the Bank Secrecy Act (BSA) to cryptocurrency activities.
    *   Classifies crypto exchanges and similar entities as Money Services Businesses (MSBs).
    *   Requires MSBs to:
        *   Register with FinCEN.
        *   Implement Anti-Money Laundering (AML) programs.
        *   Conduct Know Your Customer (KYC) checks.
        *   Monitor transactions.
        *   Report Suspicious Activity Reports (SARs).
        *   Report Large Currency Transactions (CTRs - potentially applicable to crypto transactions over $10,000 under proposed rules).
*   **Securities and Exchange Commission (SEC):**
    *   Regulates digital assets that qualify as "securities."
    *   Applies the *Howey* Test to determine if a digital asset is an "investment contract" and thus a security.
    *   Requires platforms trading securities to register as securities exchanges or Alternative Trading Systems (ATS).
    *   Requires issuers of securities to register offerings or qualify for an exemption.
    *   Enforces regulations against unregistered offerings and platforms.
    *   Approved spot Bitcoin and Ethereum Exchange-Traded Funds (ETFs) for retail investor exposure through traditional brokerage accounts.
*   **Commodity Futures Trading Commission (CFTC):**
    *   Classifies certain cryptocurrencies (e.g., Bitcoin, Ether) as commodities.
    *   Regulates derivatives markets based on these commodities (e.g., futures, options).
    *   Exercises enforcement authority against fraud and manipulation in the underlying spot commodity markets.
*   **Internal Revenue Service (IRS):**
    *   Treats cryptocurrencies as property for federal tax purposes, not as currency.
    *   Requires taxpayers to report capital gains or losses on crypto transactions.
    *   Taxes income from activities like mining or staking as ordinary income.
    *   Requires crypto brokers to report users' digital asset sales to the IRS via Form 1099-DA (starting January 1, 2025).
*   **State Regulators:**
    *   Many states have their own regulations.
    *   Some states require specific licenses for money transmission or virtual currency business activities (e.g., New York's BitLicense).
    *   State securities regulators ("Blue Sky" laws) also apply.

### II. Important Legislation and Regulations

*   **Bank Secrecy Act (BSA):** Applied to cryptocurrency activities by FinCEN.
*   ***Howey* Test:** Used by the SEC to determine if a digital asset is a security.
*   **Form 1099-DA:** IRS form required for crypto brokers to report users' digital asset sales (starting January 1, 2025).
*   **FIT21 Act:** Passed by the House in 2024, aimed at creating a more comprehensive framework for digital assets.
*   **State-Specific Regulations:** Vary by state (e.g., New York's BitLicense).

### III. Requirements for Compliance

*   **AML/KYC Compliance:**
    *   Required for MSBs (crypto exchanges, etc.) under FinCEN regulations.
    *   Includes customer due diligence, transaction monitoring, and reporting of suspicious activity.
*   **Securities Registration:**
    *   Required for platforms trading digital assets deemed securities.
    *   Issuers of digital asset securities must register offerings or qualify for an exemption.
*   **Tax Reporting:**
    *   Taxpayers must report capital gains/losses on crypto transactions to the IRS.
    *   Crypto brokers must report users' digital asset sales to the IRS via Form 1099-DA (starting January 1, 2025).
*   **State Licensing:**
    *   May be required depending on the state and the nature of the business (e.g., money transmission).

### IV. Notable Restrictions or Limitations

*   **Complexity:** The regulatory landscape is complex and involves multiple federal and state agencies.
*   **Uncertainty:** The regulatory environment is evolving, and new rules are being developed.
*   **Securities Classification:** The SEC's classification of certain digital assets as securities can impose significant regulatory burdens.
*   **Tax Implications:** Cryptocurrency transactions are taxable events, requiring careful record-keeping.

### V. Recent Developments or Changes

*   **Approval of Spot Bitcoin and Ethereum ETFs:** Allows retail investors exposure through traditional brokerage accounts.
*   **IRS Form 1099-DA Reporting:** Crypto brokers are required to report users' digital asset sales to the IRS starting January 1, 2025.
*   **Legislative Efforts:** Ongoing discussions and legislative efforts at the federal level (e.g., the FIT21 Act) aimed at creating a more comprehensive framework for digital assets.
*   **Administrative Changes:** Potential shifts in regulatory approaches signaled by new task forces and guidelines.

Full Analysis Report

Report: Retail Cryptocurrency Trading Status in the United States of America

Report Date: April 13, 2025

Topic: Retail_Trading_Status

Description: Assess whether individual citizens and residents in the country are legally permitted to buy, sell, and hold cryptocurrencies. Detail the regulatory environment surrounding this activity (e.g., KYC/AML requirements imposed on platforms, general warnings issued)

1. Current Status

Allowed-Regulated

2. Narrative Explanation

Individual citizens and residents in the United States are legally permitted to buy, sell, and hold cryptocurrencies. However, this activity occurs within a complex and evolving regulatory framework involving multiple federal and state agencies, making the status "Allowed-Regulated". There is no single, comprehensive federal law specifically governing all aspects of cryptocurrency, but various existing financial regulations are applied, and new rules are being developed.

Key Regulatory Aspects:

  • Anti-Money Laundering (AML) and Know Your Customer (KYC): The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, plays a crucial role. FinCEN applies the Bank Secrecy Act (BSA) to cryptocurrency activities. Entities facilitating the exchange or transmission of convertible virtual currencies (CVCs), such as crypto exchanges, are generally classified as Money Services Businesses (MSBs). As MSBs, these platforms must register with FinCEN, implement robust AML programs, conduct KYC checks to verify customer identities, monitor transactions, and report suspicious activities (SARs) and large currency transactions (CTRs, potentially applicable to crypto transactions over $10,000 in value under proposed rules). These requirements aim to prevent illicit activities like money laundering and terrorist financing.
  • Securities Regulation: The Securities and Exchange Commission (SEC) regulates assets that qualify as "securities." The SEC applies the Howey Test to determine if a digital asset constitutes an "investment contract" and thus a security. Many Initial Coin Offerings (ICOs) and certain cryptocurrencies have been deemed securities by the SEC. Platforms trading these assets must register as securities exchanges or alternative trading systems (ATS), and issuers must register the offerings or qualify for an exemption. The SEC has pursued enforcement actions against unregistered offerings and platforms. Recent developments include the approval of spot Bitcoin and Ethereum Exchange-Traded Funds (ETFs), allowing retail investors exposure through traditional brokerage accounts, albeit within the existing securities framework.
  • Commodities Regulation: The Commodity Futures Trading Commission (CFTC) classifies certain established cryptocurrencies, notably Bitcoin and Ether, as commodities. The CFTC regulates derivatives markets based on these commodities, such as futures and options contracts. It also exercises enforcement authority against fraud and manipulation in the underlying spot commodity markets.
  • Taxation: The Internal Revenue Service (IRS) treats cryptocurrencies as property for federal tax purposes, not as currency. This means that buying, selling, trading, or using cryptocurrency to pay for goods and services are generally taxable events. Taxpayers must report capital gains or losses on their transactions. Gains are taxed at short-term or long-term capital gains rates depending on the holding period. Income earned from activities like mining or staking is taxed as ordinary income. Record-keeping of all transactions is essential for tax compliance. Starting in 2025, crypto brokers are required to report users' digital asset sales to the IRS via Form 1099-DA.
  • State-Level Regulation: Beyond federal oversight, many states have their own regulations. Some states require specific licenses for money transmission or virtual currency business activities (e.g., New York's BitLicense). State securities regulators ("Blue Sky" laws) also apply, and multistate coalitions sometimes coordinate enforcement actions.
  • Evolving Landscape: The regulatory environment remains dynamic. There are ongoing discussions and legislative efforts at the federal level (e.g., the FIT21 Act passed by the House in 2024, various Executive Orders, and proposed rulemakings by agencies like FinCEN) aimed at creating a more comprehensive and clear framework for digital assets, addressing stablecoins, market structure, and consumer protection. Recent administrative changes have also signaled potential shifts in regulatory approaches, with task forces being established to develop clearer guidelines.

In summary, while retail trading is permitted, it is subject to a significant and multifaceted regulatory structure focused on AML/CFT compliance, investor protection (where assets are deemed securities), market integrity (for commodity derivatives), and taxation. Platforms serving US customers must navigate these complex requirements.

3. Relevant Text Excerpts

  • Legality and General Regulation: "Yes, crypto trading is legal in the U.S.A., but it is regulated by agencies like the SEC and CFTC. Exchanges must comply with anti-money laundering (AML) and know-your-customer (KYC) laws. Some states have additional regulations. The IRS considers cryptocurrency taxable." (Source: KYC Hub)
  • FinCEN and AML/KYC: "In the U.S., AML and KYC measures are mandatory for most crypto exchanges because they are defined as money service businesses (MSBs) under federal regulations. According to the Financial Crimes Enforcement Network (FinCEN), the Bank Secrecy Act (BSA) applies to companies that involve cryptocurrencies. [...] MSBs must register with FinCEN and are subject to AML controls and regulatory compliance regarding record keeping and reporting requirements." (Source: Trulioo)
  • FinCEN's Scope: "FinCEN regulates all crypto assets for purposes of AML and combating the financing of terrorism." (Source: InnReg)
  • SEC's Role: "The SEC (Securities and Exchange Commission) regulates securities, while the CFTC (Commodity Futures Trading Commission) classifies Bitcoin and Ethereum as commodities." (Source: KYC Hub) "The SEC wants to classify digital assets as securities. The agency is concerned with investor protection, and requires that all offerings that qualify as “investment contracts” be formally registered." (Source: Britannica Money)
  • CFTC's Role: "The CFTC argues that cryptocurrencies are commodities, akin to oil or gold. The agency defines commodities as assets that can support futures contracts, and it already regulates an active market for cryptocurrency futures." (Source: Britannica Money)
  • IRS Taxation: "The IRS treats cryptocurrency as property, meaning that when you buy, sell or exchange it, this counts as a taxable event and typically results in either a capital gain or loss. When you earn income from cryptocurrency activities, this is taxed as ordinary income." (Source: TurboTax - Intuit) "From January 1, 2025, crypto brokers must report users' digital asset sales to the IRS via Form 1099-DA." (Source: Blockpit)
  • Complexity: "US cryptocurrency regulations create a complex framework that businesses in the digital asset space need to understand carefully. Several federal agencies like the SEC, CFTC, and FinCEN set strict rules for AML compliance, KYC verification, and tax reporting. State-specific rules make things even more complex." (Source: KYC Hub)

4. Source Links

Web Sources (24)

Sources discovered via web search grounding

Search queries used (6)
  • Is cryptocurrency trading legal for individuals in the US?
  • US cryptocurrency regulations retail trading KYC AML
  • SEC CFTC FinCEN cryptocurrency regulation summary
  • IRS cryptocurrency tax rules for individuals
  • Bank Secrecy Act cryptocurrency exchanges
  • Current status US crypto regulation framework
Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Source

Reviews

No reviews yet

Submit Review

Challenge: Disagree with the analysis | Approval: Confirm it's correct | Refinement: Suggest improvements