Crypto Tax, Laws & Regulation in the USA
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Cryptocurrency is considered a digital asset and taxed like any other property in the USA. The Internal Revenue Service (IRS) classifies crypto not as a currency but as property. There is still a lot of ambiguity around crypto tax in the US, depending on how it is being traded in each State. This article takes a deeper look at the type of digital assets available and why this classification matters for taxes and regulation.
Types of Digital Assets
Digital assets are a digital representation of value recorded on blockchain or distributed ledger technologies. It has evolved into several categories within the broader blockchain ecosystem. Different asset classes serve distinct purposes that determine their nature and use in the crypto sector –
- Coins – Digital assets found on native blockchain, such as Bitcoin and Ethereum. Coins provide the primary functionality of digital money: peer-to-peer transactions, secure network operations, and an inherent store of value.
- Tokens – Digital assets created on an existing blockchain, such as Ethereum or Solana. They often provide utility or governance features in decentralized applications. Utility tokens are used to pay for access to products and services, while governance tokens allow holders to vote on protocol changes.
- Stablecoins – These assets are designed to maintain a fixed value by being pegged to assets like gold or the U.S. dollar. Examples of stablecoins are USD Tether (USDT), USD Coin (USDC), and DAI. Stablecoins act as essential payment, trading, volatility, and price hedging tools in the crypto ecosystem.
- NFTs – Non-fungible tokens are unique, indivisible digital assets recorded on a blockchain. They are generally used for digital art, collectibles, gaming assets, music rights, and digital identity. NFTs are unique tokens, as they provide veritable ownership rights and provenance.
- DeFi (Decentralized Finance) – These are blockchain-based financial applications that allow lending, borrowing, yield farming, staking, and providing liquidity. They provide services aimed at substituting the traditional financial markets and services without intermediaries. Users can earn yields on their crypto assets, take out loans using them as collateral, and even supply liquidity.
Why Classification Matters for Cryptocurrency Regulation & Tax
Classifying digital assets is important because the regulatory framework, taxes, and compliance obligations vary. For example, digital assets like Bitcoin may be considered property or commodities that affect how capital gains taxes are applied. Utility tokens differ from security tokens, with the latter being required to comply with stricter regulatory requirements.
Understanding the classification of digital assets is critical because it helps investors and businesses avoid violating rules. For stablecoins, regulators have mostly focused on reserves, systematic risk, and transparency. Classifying an asset clarifies whether it is functioning more as digital money, a commodity, or a financial instrument, and determines how issues require compliance.
For NFTs, knowing if the NFT represents collectibles, proof-of-ownership, or intellectual property decides the tax obligations. Different jurisdictions have different tax rates for NFT assets. Another category, DeFi tokens, may involve complexities related to staking rewards, yield farming returns, and liquidity pool incentives. These returns can be taxed as income, capital gains taxes, or both, based on the structure.
Crypto Gambling Regulation in the United States
Crypto gambling platforms and casinos in the U.S. operate under a mix of federal and state regulations aimed at preventing money laundering, fraud, and unlicensed gaming. Platforms that facilitate crypto payments may fall under FinCEN’s Money Service Business (MSB) requirements, meaning they must follow KYC/AML rules, maintain transaction monitoring systems, and submit Suspicious Activity Reports (SARs) when needed.
At the state level, gambling regulations vary widely—states like Nevada, New Jersey, and Pennsylvania require formal gaming licenses, while others prohibit most forms of online gambling. Because blockchain transactions can obscure user identities, regulators also enforce geolocation checks and stricter oversight to prevent unlawful or cross-border gambling activity.
Regulatory Bodies in the U.S.
Securities and Exchange Commission (SEC)
The SEC’s primary role is to regulate virtual currency and ensure that platforms and projects qualify as securities. It assesses the status of an asset under the Howey Test and decides whether the crypto or token qualifies as a security or investment contract.
Virtual currency is considered a security if an individual invests money in anticipation of making profits from the projects or promoters. The SEC regulates activities like initial coin offerings (ICOs), token presales, exchange listings, and crypto staking programs if they resemble investment products.
SEC requires appropriate registration and exemption filings, clearly articulated disclosure, and protection against misleading advertisements. Cryptocurrency exchanges or brokers offering a security need to register with the SEC. If they are not registered, fraudulent tokens, manipulated trades, and non-compliant crypto platforms are subject to enforcement actions by the SEC. They protect investors and emphasize financial transparency and compliance with security regulations; however, often criticized, the SEC has provided little clarity regarding crypto regulations, creating an environment of “regulation by enforcement”.
Commodity Futures Trading Commission (CFTC)
The CFTC oversees the US derivatives markets and classifies major cryptocurrencies like Bitcoin and Ethereum as commodities. CFTC is responsible for overseeing futures options and swaps, tied to such digital commodities. While the CFTC does not regulate trading of “spot” crypto operations, it pursues fraud and market manipulation, including those associated with virtual currency. Its responsibilities include, among other things, monitoring crypto derivatives, trading exchanges, overseeing commodity pool operators, enforcing anti-manipulator rules, and ensuring the integrity of the market.
Major cryptocurrency exchanges operate under the CFTC’s oversight when they offer Bitcoin or Ethereum futures. The regulatory body is generally regarded as an agency that does not discourage innovation compared to others, but focuses on promoting responsible blockchain development while simultaneously maintaining strict enforcement against misconduct.
Internal Revenue Service (IRS)
In the US, the IRS dictates how virtual currency is taxed, treating it as property, not currency. This determination is critical as it means that nearly all transactions involving cryptocurrencies are considered a taxable event. Selling crypto assets, exchanging them for other digital assets, or using crypto to purchase goods and services, can result in a capital gain or loss, depending on the change in value from the time of purchase.
The IRS treats activities that are income-based (mining, staking, yield rewards, airdrops, and hard forks) as taxable income equal to the fair market value when the income is received. Every crypto exchange must comply with mandatory reporting to the IRS about every activity involving cryptocurrencies. All businesses paying in cryptocurrency must consider the wages paid to the employees subject to payroll taxes. In 2025, the IRS continues to tighten its oversight and implement strict reporting with the growth of the crypto industry, and simultaneously, expand its enforcement to reduce tax evasion.
Treasury, FinCEN & State Regulators
The Treasury Department of the United States is responsible for the financial integrity of markets, the enforcement of sanctions, and anti-crime initiatives in the crypto industry. The two main branches of the Treasury involved are the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN).
The Office of Foreign Assets Control (OFAC) administers the US sanctions and maintains a list of prohibited individuals, groups, or nations. This blacklist, which OFAC publishes, includes the crypto wallets linked to sanctioned individuals and groups, along with other prohibited entities. Any business that is connected with a wallet linked to a prohibited party may not process or facilitate transactions involving that wallet.
FinCEN has classified crypto exchanges and similar businesses as Money Service Businesses (MSBs). MSBs must appear to federal anti-money laundering (AML) and know your customer (KYC) rules, have a compliance program, and file suspicious activity reports (SARs), as necessary. FinCEN focuses on preventing the use of virtual currency for any criminal activity, as well as for the financing of terrorism, and sanctions evasion. Any business that allows the exchange, remittance, or safekeeping of crypto needs to register as a MSB and comply with FinCEN reporting requirements.
States also impose their own licensing schemes and compliance obligations. New York’s BitLicense is one of the most stringent and requires compliance with numerous cybersecurity standards, capital reserves, periodic audits, and financial protection disclosures. Other states may require that cryptocurrency companies receive a money transmitter license (MTL) in states where they are transacting business.
U.S. Legislation Governing Crypto
GENIUS Act
The GENIUS Act (Granting Electronic National Innovations for User Security) is a draft regulatory framework in the US that aims to improve enforcement of regulation in the digital currency marketplace by providing uniform definitions across agencies. The GENIUS Act seeks to remove or diminish conflict between the SEC and CFTC by providing better classifications of digital assets based on their use, decentralization, and issuance method. It looks after consumer protection and requires token issuers to disclose risks related to their tokens, distribution process, governance rights, and technological risks. The GENIUS Act also requires exchange platforms to incorporate enhanced cybersecurity and fraud monitoring, requiring additional forms of protection to segregate user funds from the platforms’ funds.
The GENIUS Act also promotes innovation by encouraging the establishment of regulatory sandboxes for blockchain startups to develop products in a compliant way. Additionally, it attempts to harmonize conflicts between state and federal regulation so that digital asset organizations can operate on a national level without navigating a fragmented compliance structure.
State-Level Regulations (New York BitLicense, Wyoming, Texas)
State-level regulatory approaches vary significantly, with one of the most restrictive being the BitLicense in New York. The BitLicense requires crypto organizations to obtain a license for digital currency activities, to maintain capital reserves, establish EML/KYC programs, have cybersecurity audits, and file periodic financial statements. This level of strictness prohibits many crypto startup organizations from operating in New York; yet, a few prefer it for the sake of protecting consumers.
In contrast, Wyoming seeks to create the most favorable legal environment for crypto companies in the US by having laws that recognize digital currency from a property law perspective, establish a banking custody right for crypto, and develop Special Purpose Depository Institutions (SPDIs) to accommodate digital asset businesses. Wyoming provides clarity to companies by differentiating between a digital consumer asset, a digital security, and a virtual currency.
The Texas approach seems to be somewhere in the middle of the regulatory spectrum; Texas recognizes cryptocurrencies in its commercial code, and now requires some virtual currency businesses to register as money transmitters in the state commercial court, without the same regulatory framework as the BitLicense. The regulators in Texas have also issued guidance for financial institutions to custody digital currency and to comply with existing laws and regulated stablecoins and central bank digital currency. Therefore, the variance of state-level regulations makes it more difficult for every business to be compliant as they seek to operate on a national level.
Notable Enforcement Cases & Precedents
Regulations governing the digital asset markets have been significantly influenced by law enforcement in the US. The SEC’s action against Ripple (XRP) became a notable case that centered on the regulatory status of the token sold on the secondary market.
Enforcement actions against exchanges like Binance and Coinbase further clarified regulatory conflicts regarding registration requirements, exchange serving as brokers, and staking programs. The action against Terraform Labs and Do Kwon established guiding principles around expected accountability for misrepresentation of algorithmic stablecoins.
The CFTC action against BitMEX demonstrated that derivatives exchanges facilitating trading for U.S. customers must register as a derivatives platform and implement controls around anti-money laundering compliance, even if the platform is offshore. Enforcement by the New York Attorney General against Tether and Bitfinex raised issues about proof-of-reserves and stablecoin transparency. Collectively, enforcement actions establish a pathway for the crypto industry towards enhanced disclosure, compliance, and consumer protection.
Key Updates till the end of 2025
Here are the key updates regarding US crypto regulations till end of 2025 –
- July 2025 – President Trump enacted the GENIUS Act, which established the first federal regulatory structure for stablecoins. According to the GENIUS Act, payment stablecoins had to be fully collateralized by the U.S. dollar, fiat currencies, liquid assets, or other real currency, establish transparency practices, require regular audits, and reserve reporting mechanisms.
- September 2025 – The SEC established generic listing standards for commodity-based ETPs and approved listing spot crypto ETFs, if they met certain regulatory conditions like having a trading record on a CFTC-licensed exchange.
- The legislators at the US Treasury have revived the concept of a Strategic Bitcoin Reserve, or the acquisition of a large crypto asset ratio over the next few years.
- The Federal Reserve relaxed restrictions on banks’ activities in the crypto space, where financial institutions were no longer required to obtain prior, special consideration for transactions and services involving cryptocurrencies, and would move forward under normal supervision.
- State-level developments – In Florida, a bill, HB183, was introduced, allowing up to 10% of certain state funds to be invested in digital assets. These changes reflected a shift towards regulatory clarity, accountability for stablecoins, and a broad adoption of cryptocurrencies by various institutions in the US.
Crypto Tax Rates for Short-Term Holding
Short-term crypto gains (digital assets held for less than a year) are taxed like ordinary income tax rates, as the IRS identifies crypto capital as property. Considering how the US income tax brackets work, this results in short-term capital gains taxes of 10% to 37% based on an individual’s taxable income.
Here’s a breakdown of the short-term crypto tax in the USA for holding digital assets –
Tax Rate | Single | Head of Household | Married Filing Jointly | Married Filing Separately |
10% | Up to $11,600 | Up to $16,550 | Up to $23,200 | Up to $11,600 |
12% | $11,601 to $47,150 | $16,551 to $63,100 | $23,201 to $94,300 | $11,601 to $47,150 |
22% | $47,151 to $100,525 | $63,101 to $100,500 | $94,301 to $201,050 | $47,151 to $100,525 |
24% | $100,526 to $191,950 | $100,501 to $191,950 | $201,051 to $383,900 | $100,526 to $191,950 |
32% | $191,951 to $243,725 | $191,951 to $243,700 | $383,901 to $487,450 | $191,951 to $243,725 |
35% | $243,726 to $609,350 | $243,701 to $609,350 | $487,451 to $731,200 | $243,726 to $365,600 |
37% | Over $609,350 | Over $609,350 | Over $731,200 | Over $365,600 |
If a person realizes a profit by selling, swapping, or using crypto the same year he acquires it, a capital gains tax must be reported. Short-term gains are treated as normal income earned, and therefore, engaging in frequent crypto transactions or disposing of crypto capital within one year will compound tax liability if the person is in the higher bracket. Therefore, it is important to keep track of the acquisition date, costs, and value of each transaction, which determine the short-term cost basis and tax liability. To help mitigate this tax liability, tax-loss harvesting can be employed. This involves selling poor-performing crypto assets to report losses against short-term gains. Furthermore, while reporting crypto transactions, every individual needs to complete IRS Form 8949 and Schedule D, where every disposal is documented, including cost basis, date of sale, value received, and gain or loss.
Crypto Tax Rates for Long-Term Holding
For crypto holdings for over a year, individuals in the US are taxed at lower, fixed long-term capital gains taxes instead of ordinary income tax rates. The long-term rates are 0%, 15%, or 20%, depending on total taxable income. Long-term crypto gains taxes are lower since the digital currency is held for a year or more, which drastically reduces an individual’s tax liability instead of selling in the short term. This is done deliberately to reward long-term investments and incentivize investors to hold in their crypto portfolios.
Tax Rate | Single | Head of Household | Married filing jointly | Married filing separately |
15% | $47,026 – $518,900 | $63,001 – $551,350 | $94,051 – $583,750 | $47,026$ – $291,850 |
20% | ≥ $518,900 | ≥ $551,350 | ≥ $583,750 | ≥ $291,850 |
Note that long-term gains need to be reported using IRS Form 8949, where individuals need to list each transaction, acquisition date, sale date, cost basis, and proceeds. This is then recapped on Schedule D. It is also highly recommended to keep extremely detailed records of every crypto event for reporting accurate long-term gains, depending on knowing the cost basis and holding period for each virtual currency held. In many cases, long-term gains can be offset with tax-loss harvesting (selling poor-performing holdings). Various tax tools are available in the market that can help automate processes for traders and investors by importing transaction data, gains and losses, and export reports compatible with the IRS.
Future Outlook
The future of crypto regulations in the US is maturing towards a clearer and more comprehensive regulation, as lawmakers who regulate cryptocurrency seek to keep pace with innovation while also protecting consumers. New legislation is anticipated to provide a clear definition for the digital asset markets, including convertible virtual currency and cryptocurrency, for the very first time, including clarifications regarding crypto vs stablecoins, security tokens, and commodities, to eliminate the gray area existing between the SEC and CFTC. Stablecoin regulation will likely be prioritized through federal rules related to reserve levels, auditing reserves, and payment of stablecoin issuers, all with the objective of providing some assurance around financial stability and transparency.
Exchanges and DeFi platforms will likely have increased and more complex compliance obligations, including issuing registration and anti-money laundering (AML) or know your customer (KYC) constructions with strict regulations regarding user assets. As part of increased regulation, the US crypto market will have further clarity and requirements with the forthcoming tax reporting framework to the IRS, especially with new, stringent rules for broker-dealers, centralized exchanges, and decentralized platforms.
Expectations of a future tax framework will include staking and token rewards, airdrops, and cross-chain transactions. It is also expected that the regulatory system will allow States to begin reflecting everything at the federal level, thus improving the existing fragmented regulatory landscape.
Increased regulation has allowed crypto and blockchain innovation and startups to begin regulatory sandboxes and innovation hubs in order to test their products in a more regulated environment. Furthermore, while it is likely that law enforcement efforts will continue to serve as a determinant in how the legislative and regulatory landscape is shaped, on the whole, the direction is pointing towards a commitment to harmonized Federal rules that provide confidence in the digital assets market while reducing systemic risk and fraud.
Conclusion
To conclude, the US crypto regulations portray a clear movement towards maturity, structure, and mainstream integration. With significant developments like the GENIUS Act, more pathways for ETFs, and further refinement of agency guidance, the regulatory space is evolving from a period of uncertainty to a more cohesive and predictable regulatory environment. Stablecoins can now be relied on with enhanced backing, expected disclosure, and auditing requirements, creating consumer and institutional confidence. Additionally, the SEC and CFTC are continuing to shape oversight through rule-making and enforcement, while the IRS continues to work towards clearer tax-reporting standards and incorporates digital assets into the traditional financial system.
States like Texas, Wyoming, and Florida have renewed their push for innovation with pro-crypto, pending legislation and investment frameworks. The Federal Reserve has begun to ease bank-related restrictions, indicating increasing acceptance for blockchain-based technologies within traditional finance. Collectively, these updates show that the US is positioning itself not to curb innovations, but to responsibly regulate cryptocurrency and build it with a broad economic and financing landscape.
Overall, it represents a turning point: digital assets are no longer considered fringe or experimental. Instead, they are being standardized, heavily regulated, and slowly incorporated into national policy. This all creates a more robust and safer environment for adoption, institutional buying, and lasting growth.
FAQs
Do I have to pay taxes every time I sell crypto?
Yes, in the US, every time you dispose of some crypto (whether you convert it to cash, purchase another crypto, or exchange it for goods), it is treated as a taxable event. Individuals need to report a capital gain/loss to the IRS. The tax you owe will be determined by the holding period, profit amount, and the overall income bracket.
Is crypto legal in all U.S. states?
Yes, cryptocurrency is legal tender in all US states. That said, the states impose varying rules and regulations on custody providers, exchanges, and other crypto businesses. Therefore, the operating rules, including reporting, taxes, and licensing, may differ.
What happens if I don’t report crypto tax in the USA?
If you do not report crypto tax in the USA, there may be penalties, fines, interest on unpaid taxes, and potential IRS audits. In high-stakes cases, the IRS may also pursue criminal charges for intentionally avoiding taxes. Non-reporting can also be flagged because the IRS knows the crypto activity through exchanges that provide Form 1099 reporting.
How does the GENIUS Act affect investors?
Investors under the GENIUS Act enjoy clear rules and regulatory classification of tokens, uniform requirements for disclosure, and stronger measures for protecting consumers. By reducing fraud risk and diminishing legal uncertainty, the GENIUS Act brings greater confidence in crypto investments and establishes a safer and more organized framework for investors to participate in crypto markets.
