Is cryptocurrency legal in the United States? The answer is yes. The federal government or most states do not ban cryptocurrencies. Cryptocurrency regulations vary from state to state and municipality to municipality, but for now, at least, you can use cryptocurrencies without fear of prosecution. That's good news for those who want to use them as currencies and bad news for those who want them regulated out of existence.
Cryptocurrencies regulation in the United States
It is not illegal to buy, sell and hold cryptocurrencies as an individual or as part of a business. Different currencies are being traded using platforms found on this site. As such, cryptocurrencies do not fall under federal regulation from the Securities and Exchange Commission (SEC).
However, US banks don't treat cryptocurrency like cash or credit cards because federal regulators haven't yet decided how they should be classified. The lack of clarity around whether cryptos will be considered securities or commodities has created uncertainty among banks about how they should handle their customers' crypto holdings.
Because many banks feel uncomfortable dealing with anything related to blockchain technology which powers most cryptocurrencies, some have stopped offering clients access to their accounts after discovering that these customers had crypto-related transactions, even if they had nothing wrong with them.
The federal government and most states have not banned cryptocurrency use. As of June 2019, the US government has not banned cryptocurrencies like Bitcoin, Ethereum, and Litecoin. Many states also have not banned cryptocurrencies. However, some state governments have imposed regulations on crypto trading, for example, requiring registration with a financial services commission or obtaining licences for money transmission businesses (MTBs).
U.S. Treasury classifies cryptocurrencies
It classifies it as a “convertible decentralised virtual currency.”
- Cryptocurrencies are not considered legal tender, meaning you can't use them as money.
- Cryptocurrencies are not considered a currency because they're not issued by a central authority and aren't backed by a physical commodity.
- Cryptocurrencies are not considered a commodity because their value fluctuates too much (i.e., they're volatile).
- Cryptocurrencies are not considered securities because they don't fit the definition of investment contracts or meet other criteria required for securities to be traded in the U.S.
- Cryptocurrencies are not stocks or bonds because they don't represent ownership interests in corporations or other entities.
The CFTC has classified cryptocurrencies as commodities under the Commodity Exchange Act (CEA). The CEA is a federal law that regulates how commodity futures contracts are traded on exchanges. Cryptocurrencies are not securities, so they do not fall under the purview of the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA).
The SEC has stated that cryptocurrency exchanges do not fall under the SEC's oversight. Suppose they don't allow users to purchase cryptocurrencies that qualify as securities. The SEC says: “The mere fact that a virtual asset is called a “coin” or “token” does not mean it is not a security. You can trade tokens on platforms as diverse as online auctions and peer-to-peer networks, and likely will become increasingly more diverse as time goes on.”
In some states, cryptocurrency businesses have been given the green light to operate. The state of Wyoming, for example, has enacted a series of bills that aim to make it easy for companies in the digital currency space to establish operations there. In other places like New York City and Austin, local governments have created regulations that permit businesses involved with blockchain technology to continue operating.
A few states have decided to ban certain aspects of cryptocurrencies altogether:
- North Carolina has banned all mining activities related to cryptocurrency mining.
- New York has prohibited companies from using “initial coin offerings” (ICOs) as an investment vehicle.
- Wyoming passed legislation allowing people with at least 20 percent interest in a crypto business or venture to qualify as nonresidents under its tax laws.
- Missouri enables crypto transactions only if they are conducted through licensed financial institutions or exchanges.
- South Carolina clarified that it does not consider cryptocurrencies.
Here we have told you about cryptocurrency regulation in the United States. The federal government has not made cryptocurrency illegal, but it's essential to understand how your state or locality treats this new technology before investing or transacting with digital coins.