Crypto Gloss

Crypto Regulation (US Deep Dive)

Crypto regulation in the United States is the product of four agencies with overlapping jurisdiction, no clear statutory framework for digital assets, and a decade of enforcement-by-litigation rather than explicit rulemaking. The SEC claims most tokens are securities; the CFTC claims Bitcoin and Ethereum are commodities; FinCEN requires KYC/AML from all crypto businesses as money service businesses; and the OCC regulates banks’ ability to provide crypto custody. The result is a regulatory labyrinth where the same token might be subject to three different agencies simultaneously. This entry covers the core regulatory framework, the major enforcement actions that shaped industry practices, and the post-2024 legislative landscape under the most crypto-friendly Congress in US history.

The Four Major US Regulators

The following sections cover this in detail.

1. SEC (Securities and Exchange Commission)

Jurisdiction claim: Most tokens are investment contracts (securities) subject to Securities Act of 1933 and Securities Exchange Act of 1934

Howey Test — The Core Framework:

The Supreme Court’s 1946 SEC v. W.J. Howey Co. established the four-part test for whether something is an investment contract (security):

  1. Investment of money
  2. In a common enterprise
  3. With expectation of profits
  4. From the efforts of others (third parties)

Applied to tokens:

  • Bitcoin: NOT a security (consensus — decentralized enough that no “efforts of others” driving return; CFTC has jurisdiction)
  • Ethereum: Controversial — SEC Chair Gary Gensler implied PoS ETH might be a security (staking = “efforts of others” argument); SEC ultimately backed off after significant pushback and Bitcoin ETF precedent
  • Most other tokens (Solana, Cardano, etc.): SEC has claimed securities status
  • XRP: SEC v. Ripple (2023) — Judge Torres ruled XRP is NOT a security when sold to retail (programmatic sales) but IS a security when sold to institutional buyers (private placement)

Major SEC enforcement actions:

  • Coinbase Wells Notice (2023): SEC sued Coinbase for operating unregistered exchange
  • Binance suit (2023): SEC sued Binance for securities violations; settled partially
  • Kraken staking-as-a-service (2023): $30M settlement; Kraken shut down US staking service
  • Ripple/XRP (2020–2024): Concluded; nuanced ruling
  • BlockFi (2022): $100M settlement for yield product as unregistered security

2. CFTC (Commodity Futures Trading Commission)

Jurisdiction: Derivatives on commodities; spot crypto traded on leverage; anti-fraud authority in spot markets

  • Bitcoin is a commodity (settled in multiple court cases and CFTC guidance)
  • Ethereum is a commodity (CFTC Chair Rostin Behnam explicitly confirmed)
  • CFTC has jurisdiction over futures, swaps, perpetuals, and options on any crypto commodity
  • Major action: BitMEX (2021): $100M settlement for unregistered derivatives exchange; FTX: full criminal referral; $5B penalty
  • FTX prosecution: DOJ criminal + CFTC civil — FTX.US operated as an unregistered futures exchange

CFTC in 2025: More favorable to crypto under new administration; advocating for CFTC being the primary regulator for digital commodities (instead of SEC).

3. FinCEN (Financial Crimes Enforcement Network, Treasury)

Jurisdiction: Anti-money laundering (AML), Bank Secrecy Act (BSA) compliance for “money service businesses”

All crypto exchanges, OTC desks, and some DeFi protocols are treated as MSBs:

  • KYC (Know Your Customer): Verify identity for transactions above thresholds
  • SAR filing: Report suspicious activity to FinCEN
  • CTR: Currency transaction reports for $10K+ cash equivalent transactions
  • Travel Rule: For transfers >$3,000, must share sender/receiver information with counterparty

FATF Travel Rule (international standard, adopted by US):

  • When transferring crypto between VASPs (Virtual Asset Service Providers), both sender and receiver VASP must exchange identification information on the real-world parties
  • Implemented differently by US, EU, Japan, Singapore
  • Challenge for DeFi: Protocols without a central operator may be impossible to comply with

Notable FinCEN actions:

  • BTC-e (2017): $110M penalty; Russian operator arrested
  • Bitfinex/Tether: $18.5M settlement (CFTC + NYAG)

4. OCC (Office of the Comptroller of the Currency)

Jurisdiction: National bank charters; bank crypto activity

Key developments:

  • Interpretive Letters 1170, 1172, 1174 (Brian Brooks, 2020–2021): Banks may custody crypto, hold stablecoin reserves, use stablecoins for settlement
  • 2021 reversal: OCC under Biden rescinded much of the Brooks guidance
  • 2025: New administration’s OCC reinstated favorable guidance for bank crypto engagement

The SEC vs. CFTC Jurisdictional Battle

The central regulatory tension: Is a digital asset a security or a commodity?

  • Security (SEC): Must register; ongoing disclosure obligations; exchange must register; strict compliance
  • Commodity (CFTC): Spot markets largely unregulated by CFTC (CFTC doesn’t regulate spot commodity trading); only derivatives regulated

Industry preference: Most crypto companies prefer CFTC regulation (less burdensome for spot trading).

The 2023–2024 Bills:

  • Commodities Clarity Act / FIT for the 21st Century Act: House passed; would give CFTC jurisdiction over most crypto; died in Senate
  • GENIUS Act (2025): Stablecoin legislation; passed Senate Banking Committee in 2025; would establish clear regulatory framework for payment stablecoins

XRP Case: Nuanced Ruling

The SEC v. Ripple Labs case produced the most nuanced crypto securities ruling to date:

Judge Analisa Torres ruling (July 2023):

  • Ripple’s institutional sales of XRP (private placement to VCs/funds) = securities; XRP buyers reasonably expected profits from Ripple’s efforts
  • Ripple’s programmatic sales (XRP sold via exchanges to retail buyers) = NOT securities; retail buyers had no information about Ripple’s efforts and no direct relationship with Ripple
  • XRP currently trading on exchanges = NOT a security

Industry impact: Created an important precedent that secondary market trading of a token is not automatically a security offering, even if the initial distribution was a securities offering.

On appeal (2024): SEC appealed the programmatic sales ruling; case remains ongoing.

State Regulation: BitLicense and Money Transmitter

The following sections cover this in detail.

New York BitLicense

  • Strictest state crypto regulation in US
  • Requires NYDFS (New York Department of Financial Services) license to do business with NY customers
  • Application cost: $100K–$500K; processing time: 1–3 years
  • Many companies (Shapeshift, others) have geo-blocked NY users to avoid BitLicense

Money Transmitter Licenses (MTLs)

  • Most states require MTL to transmit money (including crypto)
  • Coinbase, Kraken, etc. maintain 50-state MTL compliance
  • Startup burden: Tens of millions in compliance costs for nationwide US operation

Post-2024 Regulatory Environment

January 2025: New Administration

  • SEC Chair Gary Gensler resigned; Paul Atkins appointed (pro-crypto)
  • SEC created internal crypto task force; signaled dismissal of many enforcement actions
  • Multiple SEC lawsuits against exchanges dismissed or settled favorably
  • DOJ crypto enforcement: Shifted focus to criminal conduct (fraud, theft) vs. technical regulatory violations

2025 Legislative Pipeline:

  • GENIUS Act: Stablecoin framework (passed Senate Banking); would define regulated stablecoin issuers
  • Digital Asset Market Clarity Act (DAMA): Broader market structure bill; under committee review
  • FIT21 (revised): Re-introduced with bipartisan support for CFTC primary jurisdiction over crypto commodities

Bitcoin Strategic Reserve:

  • Executive Order (Jan 2025): Directed government to study a US Strategic Bitcoin Reserve
  • Bipartisan “BITCOIN Act”: Would have Treasury purchase up to 1M BTC over 5 years
  • Status: Under study/debate; not yet enacted

MiCA: The EU Framework (Brief)

For comparison, the EU’s MiCA (Markets in Crypto-Assets Regulation, fully effective December 2024):

  • Comprehensive framework for crypto issuers and service providers
  • Three asset categories: ARTs (asset-referenced tokens), EMTs (e-money tokens), other CASPs
  • CASP license available across all 27 EU member states from one country
  • Stablecoin requirements: Must maintain 1:1 reserve; regular audits
  • US companies entering EU market: Must comply with MiCA from EU entry

Related Terms

Sources

Zetzsche, D.A., Arner, D.W., Buckley, R.P., & Weber, R.H. (2019). The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators. Harvard International Law Journal, 60(2), pp. 267–315.

Hacker, P., & Thomale, C. (2018). Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies Under EU Financial Law. European Company and Financial Law Review, 15(4), pp. 645–696.

Clayton, J., & Quintenz, B. (2019). Joint Statement on Virtual Currencies. SEC/CFTC Staff Joint Statement.

Momtaz, P.P. (2021). CEO Emotions and Firm Valuation in Initial Coin Offerings: A Machine Learning Approach. Strategic Management Journal, 42(3), pp. 558–578.

Wright, A., & De Filippi, P. (2015). Decentralized Blockchain Technology and the Rise of Lex Cryptographia. SSRN Working Paper.