Crypto Regulation: How It’s Governed in the U.S. and Abroad
Cryptocurrency, or crypto, is by definition currency that is decentralized, i.e., not overseen by any central authority. As a result, crypto differs from traditional assets, such as stocks, bonds, and cash, which are highly regulated in the U.S. and worldwide.
The truth is, crypto is a rapidly developing and complex area with continual innovation and new players. Because of this fast evolution, along with the inherent complexity of crypto and the lack of regulation in its early stages, crypto has been compared to the Wild West or a gold rush. It's also attracted fraud, market manipulation, and scams.
Although governments in the U.S. and elsewhere have started to regulate cryptocurrency, crypto regulation is a changing landscape, with different international organizations and countries worldwide taking different approaches. Within the U.S., different federal agencies and states impose different rules.
In January 2025, President Donald Trump issued an executive order requiring the creation of a working group to develop federal regulations that will impose clarity and consistency within the U.S. As a result, the domestic landscape will likely change again.
What Is Crypto Regulation?
When we talk about cryptocurrency regulation, we're referring to the creation of frameworks to oversee or supervise different aspects of crypto. Such frameworks include rules to address how crypto is created, purchased, sold, traded, taxed, and how it integrates with the financial systems already in existence in the U.S. and worldwide. These types of frameworks already exist for traditional assets, which are highly regulated in the U.S. by federal agencies, including the Securities and Exchange Commission (SEC), Federal Reserve Board (FRB), and Federal Deposit Insurance Corporation (FDIC).
Why Regulate Crypto?
Like traditional asset regulation, crypto regulation benefits the market in several ways, including:
Increasing investor confidence
Protecting investors from scams, fraud, and market manipulation
Ensuring investors get accurate and necessary information about crypto
Encouraging innovation
Making crypto accessible to more people
Preventing financial crimes and fraud
Ensuring tax compliance
Providing stability in financial markets
Who Regulates Crypto?
Crypto is now regulated at a number of levels and by several agencies, both in the U.S. and internationally.
U.S. Regulations — Federal
In the U.S., there has thus far been a lack of consistent cryptocurrency regulation. Several U.S. regulatory bodies — including the Internal Revenue Service (IRS), SEC, the Commodity Futures Trading Commission (CFTC), the Department of Justice, the Federal Reserve, the Department of the Treasury, the Bureau of Industry and Security, and the Financial Crimes Enforcement Network — have all weighed in on how crypto should be classified or handled.
In addition, the SEC and CFTC have been vying for enforcement authority over crypto.
The SEC sees crypto assets as securities, similar to stocks.
The CFTC sees crypto assets as commodities, similar to gold or oil.
Potential Changes Ahead
With the new administration, a reshuffling of crypto enforcement jurisdiction between the SEC and CFTC is expected. For example, given the SEC’s crypto-as-securities stance, the commission has fined crypto companies for securities law violations, making many in the crypto industry prefer CFTC regulation. However, this view may soon change because the new SEC chair, Paul Atkins, is known to be crypto-friendly.
There are also several crypto regulation bills before the federal government. President Trump's January 2024 executive order required the creation of a “working group on digital asset markets” to “recommend regulatory and legislative proposals” regarding crypto. The order sets out the administration’s policy of supporting “the responsible growth and use of digital assets, blockchain technology, and related technologies” and calls for “regulatory clarity and certainty built on … regulations [and] frameworks … and well-defined jurisdictional regulatory boundaries.”
U.S. Regulations — State
In the U.S., states are allowed to set their own rules around cryptocurrency regulation, and they have done so. A number of states, as well as the District of Columbia and Puerto Rico, are considering or have already introduced laws regulating crypto. For example, in 2024, California enacted the Digital Financial Assets Law, which prohibits (as of July 1, 2026) individuals from engaging in digital financial asset business activity or holding themselves out as being able to engage in such activity unless they meet certain criteria, including being licensed with the Department of Financial Protection and Innovation.
Global Regulations
Some key global regulators, such as the International Monetary Fund (IMF) and the Financial Stability Board (FSB), have become involved with crypto regulation. The IMF helps other countries and organizations with crypto regulations, while the FSB created a Global Regulatory Framework for Crypto-Asset Activities.
Other Countries’ Regulatory Bodies and Regulations
Individual countries have addressed crypto differently. El Salvador and the Central African Republic now accept crypto as legal tender (i.e., currency/same as cash). Conversely, China, along with a handful of other countries, has banned crypto.
The European Union (EU): In the EU, the European Securities and Markets Authority (ESMA) passed the Markets in Crypto Assets Regulation (MiCA), which came into force in June 2023. The MiCA, which intends to establish a regulatory framework across the EU, is a work in progress; it envisions 3 levels of rules, with the finalization of Levels 2 and 3 not complete.
In addition, the 5th Anti-Money Laundering Directive (5AMLD) was signed into law in the EU in January 2020, marking the first time crypto was brought within the scope of EU money laundering regulations. As of 2024, the EU has moved on to the 6th Anti-Money Laundering Directive (6AMLD).
The United Kingdom (UK): In October 2023, the UK published the “Future financial services regulatory regime for cryptoassets,” which extends current traditional asset regulations to crypto.
Canada: The Canadian government considers crypto a commodity for tax purposes, views crypto firms as “money service businesses,” and requires crypto-trading platforms to register with provincial agencies.
Challenges and Risks of Regulating Crypto
As evidenced by the above, the regulation of crypto is not a simple matter, and certain challenges and risks associated with cryptocurrency regulation have been identified.
Crypto regulation challenges include:
Differences of opinion about how crypto and/or crypto services should be classified (commodity vs. security vs. derivative vs. legal tender)
Difficulties in integrating crypto regulations into existing regulatory frameworks
Lag in consumer protection regulations behind other types of crypto regulation (such as taxation rules)
Difficulties in regulating centralized crypto exchanges, which present a low barrier to entry and thus attract many buyers
The lag in crypto regulation behind crypto adoption in developing countries
Crypto regulation risks include the belief that regulation might:
Restrict market access to crypto by investors
Slow the pace of blockchain innovation
Create overly complex regulatory and enforcement schemes across jurisdictions
Increase the cost of crypto by adding more compliance-related infrastructure
Increase the cost of owning crypto and drive down its price
Future of Crypto Regulation: What’s Next?
Crypto is a fast-changing area that could ultimately play a role in the lives of all Americans — not just those interested in novel financial products. In the U.S., plans are currently being put in place to create a strategic bitcoin reserve using the crypto the government has seized through asset forfeitures. The thinking is that this crypto reserve could be used to pay down the national debt.
Future lawyers would be wise to learn about crypto and stay on top of the evolving area of crypto regulation so they can advise their clients about which regulations apply.
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