Bitcoin is regulated in the United States through a patchwork rather than a single law. The Securities and Exchange Commission polices digital asset transactions that look like investment contracts, the Commodity Futures Trading Commission treats Bitcoin itself as a commodity, the Internal Revenue Service taxes it as property, and the Financial Crimes Enforcement Network subjects exchanges to anti-money laundering rules. On top of that federal layer, most states require crypto businesses to hold a money transmitter license before serving residents. A January 2025 executive order pushed the federal agencies to coordinate more closely, but as of 2026 anyone buying, selling, or holding Bitcoin still has to work across multiple regulators.
Which Federal Agencies Regulate Bitcoin
SEC: Securities Rules for Crypto Products
The SEC applies the Howey Test, drawn from a 1946 Supreme Court case, to decide whether a digital asset transaction is an investment contract subject to securities laws. The test asks whether someone invested money in a common enterprise expecting profits from the efforts of others.1U.S. Securities and Exchange Commission. Framework for Investment Contract Analysis of Digital Assets Bitcoin itself has generally not been treated as a security, largely because no central promoter drives its value. Other tokens, initial coin offerings, and yield products have been found to meet the test, and platforms that list them without registering face enforcement.
The SEC also regulates spot Bitcoin exchange-traded funds. On January 10, 2024, it approved eleven spot Bitcoin ETF proposals after finding that surveillance-sharing arrangements with the CME addressed manipulation concerns.2U.S. Securities and Exchange Commission. Order Granting Accelerated Approval of Proposed Rule Changes for Spot Bitcoin ETFs Those funds trade under the same rules as any other equity security, which means holding Bitcoin exposure through a brokerage account is regulated very differently from holding coins on an exchange.
CFTC: Bitcoin as a Commodity
The CFTC classifies Bitcoin as a commodity under the Commodity Exchange Act’s broad definition, which covers all goods and articles in which futures contracts are traded.3U.S. Securities and Exchange Commission. SEC and CFTC Staff Issue Joint Statement on Trading of Certain Spot Crypto Asset Products Federal courts confirmed that reading in 2018. Bitcoin futures and swaps therefore fall under the same regime that governs gold or crude oil derivatives, with reporting requirements and position limits. When a platform offers both spot trading and derivatives, it can fall under SEC and CFTC jurisdiction at once.
IRS: Bitcoin as Property
The IRS treats Bitcoin as property, not currency. Notice 2014-21 established that general property tax principles apply to every Bitcoin transaction, whether you sell on an exchange, trade one asset for another, or use Bitcoin to buy something.4Internal Revenue Service. Notice 2014-21 Each event is a taxable gain or loss based on the difference between your cost basis and the fair market value at the time. Details on rates and reporting are covered further down.
FinCEN: Anti-Money Laundering Oversight
FinCEN classifies Bitcoin exchanges and administrators as money services businesses under the Bank Secrecy Act.5Financial Crimes Enforcement Network. Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies Individuals who simply buy and hold are not money services businesses, but any platform that exchanges or transmits virtual currency on behalf of others is. That designation drives the identity verification, transaction monitoring, and reporting you experience as a user.
What the 2025 Executive Order Changed
In January 2025, the White House issued an executive order titled “Strengthening American Leadership in Digital Financial Technology.”6The White House. Strengthening American Leadership in Digital Financial Technology It directed the SEC, CFTC, Treasury, and Justice Department to identify all existing digital asset regulations and guidance within 30 days, recommend which should be rescinded or modified within 60 days, and propose a comprehensive federal framework within 180 days.
Several pieces of the order matter directly to individuals. It explicitly protects the right to self-custody digital assets and to participate in mining and validating blockchain networks. It prohibits the creation of a U.S. Central Bank Digital Currency, citing privacy and financial sovereignty. It also revoked the Treasury’s 2022 framework for international engagement on digital assets. Congress has moved in a parallel direction: the Financial Innovation and Technology for the 21st Century Act passed the House in May 2024 but stalled in the Senate and is not law.
Taxes You Owe as a Holder
Because the IRS treats Bitcoin as property, every disposition is a taxable event. Hold Bitcoin more than a year and any gain qualifies for long-term capital gains rates of 0%, 15%, or 20%, depending on income. For 2026, single filers pay 0% on gains up to $49,450 in taxable income and reach the 20% rate above $545,500. Sell before the one-year mark and the gain is taxed at ordinary income rates, which run as high as 37%. Higher earners also owe the 3.8% Net Investment Income Tax on capital gains when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.7Internal Revenue Service. Questions and Answers on the Net Investment Income Tax Those thresholds are not indexed for inflation.
Reporting is not optional. Form 1040 asks every taxpayer whether during the year they received, sold, exchanged, or otherwise disposed of a digital asset or a financial interest in one.8Internal Revenue Service. Determine How to Answer the Digital Asset Question The IRS can impose a 20% accuracy-related penalty on underpayments tied to negligence or substantial understatement, and a 75% civil fraud penalty for deliberate fraud.9Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty
New Broker Reporting on Form 1099-DA
Starting with transactions on or after January 1, 2026, crypto brokers must report sales to both the IRS and their customers on Form 1099-DA. For digital assets that qualify as covered securities (those acquired after 2025 in a custodial account), brokers must report gross proceeds and cost basis. For assets acquired before 2026 or held outside a custodial account, basis reporting is voluntary.10Internal Revenue Service. Instructions for Form 1099-DA (2025)
Foreign Exchange Accounts
If you hold Bitcoin on a foreign exchange and the aggregate value of your foreign financial accounts exceeds $10,000 at any point during the year, you must file FinCEN Form 114, the FBAR. It is due April 15, with an automatic extension to October 15.11Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) Willful failure carries civil fines and potential criminal liability.
AML Rules That Reach Users Through Exchanges
Every crypto platform operating in the U.S. must register with FinCEN within 180 days of beginning operations and maintain a written anti-money laundering program with a designated compliance officer and independent testing.12Financial Crimes Enforcement Network. Money Services Business (MSB) Registration That is why exchanges verify identity through government-issued ID and proof of address before letting you trade or withdraw.
Two rules drive what you see as a user. The Travel Rule requires that for any transfer of $3,000 or more, the platform record and pass along identifying information about the sender and receiver to the next institution in the chain.13eCFR. 31 CFR 1010.410 – Records to Be Made and Retained by Financial Institutions Platforms must also file Suspicious Activity Reports for transactions of $2,000 or more that appear tied to illicit funds or lack a clear lawful purpose.14Financial Crimes Enforcement Network. MSB Threshold – $2,000 or More
The stakes are real. Operating an unregistered money transmitting business is a federal crime carrying up to five years in prison.15Office of the Law Revision Counsel. 18 U.S. Code 1960 – Prohibition of Unlicensed Money Transmitting Businesses In 2023, FinCEN reached a $3.4 billion settlement with the world’s largest cryptocurrency exchange after finding it operated without registration, failed to run an effective anti-money laundering program, and neglected to file over 100,000 required suspicious activity reports.16U.S. Department of the Treasury. U.S. Treasury Announces Largest Settlements in History with World’s Largest Virtual Currency Exchange Binance
Withdrawals to self-custody wallets are a live regulatory question. In late 2020, FinCEN proposed a rule that would have required banks and money services businesses to report transactions above $10,000 involving self-custody wallets and to collect counterparty information for transactions over $3,000.17U.S. Department of the Treasury. FinCEN Proposes Rule Aimed at Closing Anti-Money Laundering Regulatory Gaps for Certain Convertible Virtual Currency and Digital Asset Transactions That rule was never finalized, and the 2025 executive order’s self-custody protection points away from finalizing it. Exchanges still apply their standard compliance procedures to external withdrawals, but no final rule imposes extra reporting specifically for self-custody transfers.
State Money Transmitter Licensing
Federal law handles fraud, taxes, and money laundering. The question of who can operate a crypto business in a given state, and under what conditions, falls to state regulators. Most states require digital asset companies to obtain a money transmitter license, which involves background checks, financial audits, and a surety bond. Application fees range from nothing to $10,000, with most between $1,000 and $3,000. Bond minimums typically start between $25,000 and $100,000 and scale with volume.
A handful of states have built specialized virtual currency licensing frameworks with detailed capital, cybersecurity, and consumer protection requirements. These can be expensive enough to comply with that some smaller companies avoid those markets, which is one reason a service available in one state may be blocked in another. The Uniform Law Commission developed the Uniform Regulation of Virtual-Currency Businesses Act as a model to reduce that fragmentation, but adoption has been slow and most states still default to their traditional money transmission statutes.18Uniform Law Commission. Enactment Kit – Uniform Regulation of Virtual-Currency Businesses Act
Custody and Bankruptcy Risk on Exchanges
Holding Bitcoin on an exchange means the exchange controls the private keys. That is a custodial relationship, and if the platform files for bankruptcy, your Bitcoin is not automatically yours to reclaim. Federal bankruptcy courts have been working through how customer digital assets should be treated, and the answer often turns on the platform’s terms of service. Some terms say customers retain title. Others transfer title to the platform, which can then lend, pledge, or trade those assets. Where customer assets have been commingled with the exchange’s own funds, courts may apply pro rata distribution, so customers share what remains rather than getting back exactly what they deposited.
Disclosure rules in this area have swung. In 2022, the SEC issued Staff Accounting Bulletin 121 requiring platforms to report customer crypto holdings as liabilities on their balance sheets, along with corresponding assets.19U.S. Securities and Exchange Commission. Staff Accounting Bulletin No. 121 Banks argued the treatment made custody prohibitively expensive from a capital standpoint. The SEC rescinded that guidance in January 2025 through SAB 122, removing the balance-sheet requirement.
Inherited Bitcoin
Bitcoin you inherit gets a step-up in cost basis to its fair market value on the date of death. If the original holder bought at $500 and it was worth $60,000 when they died, your basis is $60,000. Sell immediately and you owe nothing in capital gains taxes; hold and appreciate further, and you only owe on gains above the stepped-up value. That treatment is significantly more favorable than a gift, which carries over the original owner’s basis and any embedded gains.
The regulatory framework for access is separate from the tax treatment. Most states have adopted some version of the Revised Uniform Fiduciary Access to Digital Assets Act, which lets executors and other fiduciaries manage a deceased person’s digital assets. A custodian such as an exchange can grant an executor access after receiving a written request, a death certificate, and letters of appointment. No law, however, can recover a lost private key from a self-custody wallet, so anyone holding meaningful amounts should document where assets are stored and how an executor can reach them.