The U.S. government regulates and taxes crypto through a split system: the SEC and CFTC divide market oversight depending on whether a token behaves like a security or a commodity, FinCEN polices exchanges for money laundering, and the IRS treats every digital asset as property, so nearly every sale, trade, or purchase you make with crypto is a taxable event. In 2025, Congress and the White House added two major pieces to the picture: a federal licensing regime for stablecoin issuers and a Strategic Bitcoin Reserve funded by forfeited coins.
Who Regulates Crypto
Two federal agencies handle most crypto market oversight, and which one has jurisdiction depends on how a token is classified.1Securities and Exchange Commission. SEC Clarifies the Application of Federal Securities Laws to Crypto Assets
The SEC decides whether a digital asset is a security by applying the Howey Test, a standard drawn from a 1946 Supreme Court case. A token qualifies as a security if people put money into a shared venture expecting returns based mostly on what others do, such as a development team building out a platform.2Justia U.S. Supreme Court Center. SEC v. W.J. Howey Co. – 328 U.S. 293 If it does, the issuer must register the token and follow the same disclosure rules that apply to stocks and bonds under the Securities Act of 1933.3Office of the Law Revision Counsel. 15 USC Chapter 2A – Securities and Trust Indentures
The SEC’s enforcement stance has changed. Starting in early 2025, the agency dismissed seven crypto enforcement actions, including cases against Coinbase, Binance, and Consensys.4Securities and Exchange Commission. SEC Announces Enforcement Results for Fiscal Year 2025 It has also clarified that certain protocol staking services, where holders lock up tokens to help validate a blockchain and earn rewards, are not securities offerings.5U.S. Securities and Exchange Commission. Providing Security is not a Security – Division of Corporation Finance Statement on Protocol Staking
The CFTC handles digital assets classified as commodities, a group that includes Bitcoin and other sufficiently decentralized tokens. Its authority under the Commodity Exchange Act focuses on fraud, manipulation, and market integrity rather than disclosure. The dividing line between securities and commodities is still unsettled: a token can look like a security during its initial fundraising and later behave like a commodity as its network decentralizes. The FIT for the 21st Century Act passed the House in 2024 and similar bills have been introduced in the current Congress, but no comprehensive market structure law has been enacted.6House Committee on Agriculture. Myth vs. Fact – FIT for the 21st Century Act
Stablecoin Rules Under the GENIUS Act
The GENIUS Act, signed on July 18, 2025, is the first comprehensive federal framework for stablecoins. It limits U.S. stablecoin issuance to three types of entities: subsidiaries of insured banks, federally licensed stablecoin issuers, and state-licensed stablecoin issuers.7Federal Register. GENIUS Act Implementation
Every issuer must hold at least one dollar of high-quality reserves for every dollar of stablecoins in circulation. Permitted reserves are limited to cash, insured bank deposits, short-term Treasury bills, repurchase agreements backed by Treasuries, government money market funds, and central bank reserves.8Kansas Legislative Research Department. Briefing Book 2026 – Stablecoin Tracking the New Policy Approach Issuers must publish monthly breakdowns of what those reserves actually contain.
Penalties are significant. Knowingly violating the issuance restrictions can result in fines of up to $1 million per violation, up to five years in prison, or both. Starting July 18, 2028, digital asset service providers may not offer any stablecoin to U.S. customers unless it was issued by a permitted domestic issuer or a qualifying foreign issuer that meets equivalent standards.7Federal Register. GENIUS Act Implementation
How the IRS Taxes Crypto
The IRS treats cryptocurrency as property, not currency. That classification, established in Notice 2014-21, means every time you sell, trade, spend, or otherwise dispose of a digital asset, it is a taxable event that can produce a capital gain or loss.9Internal Revenue Service. Notice 2014-21 You calculate the gain or loss by comparing what you received to your cost basis, which is the fair market value of the asset when you acquired it.
Report capital gains and losses on Form 8949, then carry the totals to Schedule D of your Form 1040.10Internal Revenue Service. Instructions for Form 8949 – Sales and Other Dispositions of Capital Assets How much tax you owe depends on your holding period:
- If you held the asset one year or less, gains are taxed at your ordinary income rate, which ranges from 10% to 37%.
- If you held it longer than one year, gains are taxed at long-term rates of 0%, 15%, or 20% depending on your taxable income.11Internal Revenue Service. Topic No. 409, Capital Gains and Losses
For tax year 2026, the 0% long-term rate applies to single filers with taxable income up to $49,450, or $98,900 for married couples filing jointly. The 20% rate begins above $545,500 for single filers and $613,700 for joint filers. Income between those thresholds falls into the 15% bracket.12Tax Foundation. 2026 Tax Brackets and Federal Income Tax Rates
One quirk works in crypto holders’ favor in 2026. The wash sale rule, which blocks stock investors from selling at a loss and immediately repurchasing the same asset to claim the deduction, does not currently apply to digital assets. You can sell a coin at a loss, buy it right back, and still deduct that loss. Several legislative proposals would close this gap, so it may not last.
The 1040 Question and Form 1099-DA
Every federal tax return now includes a yes-or-no digital asset question near the top of Form 1040: “At any time during the tax year, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”13Internal Revenue Service. Digital Assets Answering incorrectly or leaving it blank can trigger penalties, interest, and in willful cases, criminal charges.
Beginning in 2026, crypto brokers and exchanges must report your cost basis on Form 1099-DA, building on gross proceeds reporting that took effect in 2025. The IRS now receives much of the same transaction-level detail from crypto brokers that it already gets from stock brokerages.14Internal Revenue Service. Final Regulations and Related IRS Guidance for Reporting by Brokers on Sales and Exchanges of Digital Assets If you move coins between wallets or exchanges, keep your own records of original acquisition dates and prices. Transfers can break the cost-basis chain that brokers track.
Staking and Mining Income
Earning crypto through staking or mining creates taxable income the moment you gain control of the new tokens, not when you eventually sell them. Revenue Ruling 2023-14 makes this explicit for staking: the fair market value of your rewards is included in gross income in the year you gain “dominion and control,” meaning the ability to sell or transfer the tokens.15Internal Revenue Service. 26 CFR 1.61-1 Gross Income – Revenue Ruling 2023-14 This applies whether you stake directly on a blockchain or through a centralized exchange.
Mining income works the same way. If you mine as a business, you report earnings on Schedule C and owe self-employment tax of 15.3% on top of regular income tax. You can deduct business expenses like electricity, equipment depreciation, and internet costs. If mining is a hobby, you still owe income tax on the tokens you receive but cannot deduct expenses against them.13Internal Revenue Service. Digital Assets The IRS weighs factors like the time you invest, whether you keep proper books, and your track record of profitability to decide which category fits.
In both cases, the fair market value at the time you receive the tokens becomes your cost basis. If you later sell those tokens for more than that amount, you owe capital gains tax on the difference.
Anti-Money Laundering Rules That Reach Users
Cryptocurrency exchanges operating in the United States must register as money services businesses with FinCEN under the Bank Secrecy Act. Operating without registration is a federal crime punishable by up to five years in prison, and civil penalties for failing to register can reach $5,000 per violation, with each day of noncompliance counting as a separate violation.16Financial Crimes Enforcement Network. Money Services Business (MSB) Registration
For you as a customer, this shows up as Know Your Customer procedures. Registered exchanges must verify your identity, typically by collecting a government-issued ID, Social Security number, and physical address. They must also file Suspicious Activity Reports for transactions that appear to lack a lawful purpose or involve potential criminal funds; the reporting threshold for money services businesses is $2,000.17Financial Crimes Enforcement Network. Fact Sheet for the Industry on MSB Suspicious Activity Reporting Rule
For any transfer of $3,000 or more, the Travel Rule requires the sending institution to pass along specific information about the sender and recipient, including names, addresses, and account numbers.18Financial Crimes Enforcement Network. Funds Travel Regulations Questions and Answers Institutions must keep these records for five years.19FFIEC BSA/AML InfoBase. FFIEC BSA/AML Assessing Compliance with BSA Regulatory Requirements – Funds Transfers Recordkeeping
The Strategic Bitcoin Reserve and Seized Coins
Executive Order 14233, issued in March 2025, created the Strategic Bitcoin Reserve, a government-held stockpile of Bitcoin capitalized with coins forfeited through criminal and civil asset seizure. Every federal agency was directed to audit its digital asset holdings and transfer forfeited Bitcoin to the Treasury Department for long-term custody. The government will not sell these coins. Treasury and Commerce were also instructed to develop budget-neutral strategies for acquiring additional Bitcoin without cost to taxpayers.20Federal Register. Establishment of the Strategic Bitcoin Reserve and United States Digital Asset Stockpile
The same order established a separate United States Digital Asset Stockpile for non-Bitcoin tokens obtained through forfeiture. The government has not committed to holding those other tokens indefinitely and may dispose of them in a responsible manner.
The Department of Justice seizes digital assets linked to fraud, money laundering, darknet markets, and ransomware.21Department of Justice. Asset Forfeiture Program Once a court authorizes the seizure, the U.S. Marshals Service takes custody of the private keys and holds the coins in government-controlled wallets until the legal process ends.22U.S. Marshals Service. Asset Forfeiture After a final forfeiture order, Bitcoin goes to the Strategic Reserve; other assets may be liquidated through public auctions or specialized trading platforms, with prospective bidders required to pre-register and post a substantial deposit.
If you were a victim of a crypto fraud scheme, the DOJ or FBI may open a claims process where you can file for a share of the recovered funds. These windows have specific deadlines and typically require documentation of your losses.
Crypto in Retirement Accounts
Whether you can hold crypto in a retirement account depends on the type of account. Self-directed IRAs already allow it, because the IRS does not restrict IRAs by asset class. The restrictions focus on who you transact with, not what you buy. Under IRC § 4975, using your IRA to benefit yourself, your spouse, your children, or other close family members is a prohibited transaction. If the IRS finds a violation, the entire IRA is treated as if it was distributed on January 1 of the year the violation occurred. You owe income tax on the full balance and potentially a 10% early withdrawal penalty if you are under 59½. The safest approach is to keep your personal crypto holdings completely separate from any IRA-held digital assets and avoid transactions between the two.
Workplace 401(k) plans are still in transition. The Department of Labor proposed a rule in March 2026 that would create a process-based safe harbor for 401(k) plan fiduciaries selecting alternative investments, including cryptocurrency. The proposed rule rejects earlier Biden-era guidance that had warned plan sponsors against offering crypto options.23U.S. Department of Labor. US Department of Labor Proposes Landmark Rule to Democratize Access to Alternative Investments in 401(k) Plans The rule remains a proposal and has not been finalized, so whether your employer’s plan will offer a crypto option depends on the final version and your plan sponsor’s own decision.