rewrite this title Crypto Regulation (2025): How Are Cryptocurrency & Bitcoin Regulated in the US and EU?

Crypto regulation is the system of laws and rules that governments use to control how cryptocurrencies are created, used, and traded. In the U.S., regulation is still unclear, with oversight shared between the SEC, CFTC, FinCEN, and IRS. In the EU, the MiCA law is now fully in effect as of 2025, giving clear rules across all 27 member countries.

It is important for investors to understand existing crypto rules because these laws impact how you can legally trade, pay taxes, and protect your assets. Without this knowledge, you risk penalties or financial loss.

This guide will explain what cryptocurrency regulation is, how cryptocurrency is regulated around the world, and what the main challenges in regulating cryptocurrency are.

What Is Cryptocurrency Regulation?

Cryptocurrency regulation refers to the rules and laws set by governments or authorities to control how cryptocurrencies work. These regulations address the manner in which you can buy, sell, store, or utilize digital currencies. 

They also regulate financial institutions that handle cryptocurrencies, including crypto exchanges and wallet providers. These regulations attempt to prevent criminal practices such as money laundering, scams, or the provision of funds to terrorist organizations.

Clear and well-defined crypto regulations make the digital asset market safer. They provide proper directions to companies so they know what they can and can’t do. When rules are simple, companies can develop and expand without fear of legal trouble. Buyers also feel safer since they know the risks are lower and the market doesn’t contain too many scams. 

A stable and trusted system draws more money and people to the market. It also encourages banks and large financial institutions to participate in the crypto market. In contrast, ambiguous or harsh regulations might drive businesses away or end innovation.

Is Cryptocurrency Legal and Regulated?

Yes, cryptocurrency is regulated and legal in many nations, although the regulations are not uniform in all of them. In the United States, cryptocurrencies such as Bitcoin are legal and regulated by agencies, including the SEC, CFTC, and IRS, in terms of usage, trade, and taxation. In the European Union, cryptocurrency is also legal and regulated by the Markets in Crypto-Assets (MiCA) framework. 

These instances show that nations are legislating in order to control and legalize the use of crypto. There are, however, countries like China that prohibit the trade of crypto entirely.

How Is Cryptocurrency Regulated Around the World?

Cryptocurrency is regulated in different ways in different parts of the globe. Some nations embrace it through transparent and useful regulations, whereas other nations prohibit or restrict it through bans or ambiguous laws. Since there is no one global rule book, countries choose how they will regulate cryptocurrency.

There are governments, however, that embrace cryptocurrency wholeheartedly. They see it as a way to grow the economy, attract technology companies, and give people more control over money. Conversely, there are governments that oppose it. They prohibit it or constrain its use altogether. This is normally due to fear. Governments fear the use of crypto in illegal activities, including money laundering, scams, or the financing of crime.

Now, let’s discuss how crypto is regulated in the United States and the European Union’s new law called MiCA. You will also see how other countries like Canada, Switzerland, El Salvador, Japan, Singapore, India, and China treat crypto.

How Is Cryptocurrency Regulated in the US?

Cryptocurrency regulation in the United States has seen major developments during the Trump administration. President Donald Trump signed an executive order creating the Strategic Bitcoin Reserve and the U.S. Digital Asset Stockpile. Cryptocurrency regulation in the U.S. is administered by a variety of different federal agencies:

Securities and Exchange Commission (SEC): The SEC regulates the securities industry. It decides if specific digital assets are securities under the Howey Test or not. Traditionally, the SEC has initiated enforcement actions against crypto projects that carry out unregistered security offerings. But during the Trump administration, the SEC has toned down its enforcement actions, including dismissing charges against major exchanges such as Kraken and Coinbase.Commodity Futures Trading Commission (CFTC): The CFTC regulates digital assets that are deemed commodities, including Bitcoin and Ether. It regulates futures and options contracts on these cryptocurrencies, as well as derivatives markets.Financial Crimes Enforcement Network (FinCEN): FinCEN regulates anti-money laundering (AML) and counter-terrorism financing (CFT). It mandates the registration of crypto exchanges and wallet providers as money services businesses and conformity with AML/CFT requirements.Internal Revenue Service (IRS): The IRS considers cryptocurrencies as property for tax purposes. Taxpayers must report capital gains and losses on digital asset transactions. The IRS has provided guidance regarding the tax treatment of different crypto-related activities, including mining, staking, and airdrops.

What Crypto Exchanges Are Legal in the US?

The legal crypto exchanges in the U.S. are Coinbase, Kraken, Crypto.com, Binance.US, Gemini, Uphold, and eToro. These digital asset exchanges are safe and highly regulated to operate legally in the United States.

Is Crypto Legal to Trade in the USA?

Yes, cryptocurrency trading is legal in the United States. The U.S. Commodity Futures Trading Commission (CFTC) classifies virtual currencies as commodities and permits their trade under applicable regulations. The Internal Revenue Service (IRS) treats cryptocurrencies as property and makes transactions subject to capital gains tax.

What Is Crypto Regulation in the European Union (EU)?

Crypto regulation in the European Union (EU) is managed under a new law called MiCA, short for “Markets in Crypto-Assets”. This law provides transparent and uniform regulations for crypto companies in all of the EU’s 27 nations. Its primary aim is consumer protection, the prevention of money laundering including foreign asset control, and facilitating innovation along with security.

Under MiCA, cryptocurrency companies will have to register and obtain a license before the provision of services such as trading, custody, and token issuance. They will also have to adhere to anti-money laundering (AML) regulations, including customer identification checks. If the cryptocurrency company wishes to operate in more than one member state, it will need only one license, a provision referred to as “passporting.”

Most cryptocurrency, including Bitcoin, Ethereum, and stablecoins, is covered by the law. Stricter regulations apply to stablecoins, however. 

Stablecoin issuers need to prove that they have sufficient real-world assets to back the volume of coins issued. If the coin gets too big, the issuer will need to adhere to even more stringent regulations to control risk.

The European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) will regulate companies under MiCA. Fines of 3-12.5% of a company’s turnover per year or €5 million can be imposed for rule breaches, whichever is the larger sum.

MiCA doesn’t cover decentralized finance (DeFi) and non-fungible tokens (NFTs) at present, though it might produce more regulations on them in the future. In addition to MiCA, crypto companies must follow the EU’s Transfer of Funds Regulation. It mandates exchanges and wallet providers to capture and report sender and receiver data in all crypto transfers. It prevents illegal transfers.

MiCA is the first significant global crypto law of its type. It provides legal certainty both to the users of cryptos and to business operators in the sector. It also makes the EU the most appealing and secure jurisdiction in the crypto world.

How Is Crypto Regulated in Other Countries?

Here is how crypto is regulated in other countries, such as Canada, Switzerland, EL Salvador, Japan, Singapore, India, and China.

Canada: Cryptocurrency is legal and treated as a commodity. Exchanges are required to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Gains on cryptocurrency are taxed as business income or capital gains, depending on use.Switzerland: Swiss law is favorable towards cryptocurrencies. The Swiss Financial Market Supervisory Authority, or FINMA, regulates the crypto business. Businesses that provide trading or custody services need to have licenses and follow anti-money laundering laws. Zug, or the so-called “Crypto Valley”, is home to a high number of blockchain companies.El Salvador: El Salvador approved the use of Bitcoin as legal tender in 2021. In January 2025, the Legislative Assembly voted to eliminate Bitcoin’s legal tender status to get a $1.4 billion loan from the International Monetary Fund (IMF). While Bitcoin is still legal to use in trade, businesses will no longer need to accept it, and it cannot be used to pay taxes.Japan: Japan is upgrading its crypto assets regulations. Japan’s Financial Services Agency will revise the Financial Instruments and Exchange Act to give legal status to crypto assets as financial products.Singapore: Cryptocurrency trading is legal, but it is not considered legal tender. The Monetary Authority of Singapore (MAS) regulates crypto under the Payment Services Act. Exchanges must register and comply with AML standards.India: Cryptocurrency is not banned, but it lacks formal regulation. In 2022, the government taxed profits in cryptocurrency at a rate of 30% and deducted a tax at the source (TDS) of 1% on payments. India’s Reserve Bank of India issued the Digital Rupee (e₹) both wholesale and retail.China: China maintains a strict ban on private cryptocurrency trading and mining. The government promotes its central bank digital currency, the digital yuan.

What Are the Main Challenges in Regulating Cryptocurrency?

The main challenges in regulating cryptocurrency are a lack of global rules, rapid technology changes, unclear definitions, money laundering risks, weak investor protection, decentralized platforms, and data privacy concerns.

Absence of International Standards: As discussed above, every country treats crypto in different ways. Some nations embrace it, while others prohibit it altogether. It’s very confusing for cross-border business entities, and it’s also difficult to prevent illicit use or even safeguard investors worldwide in the absence of a consistent global standard. Regulators must collaborate, but they are not doing it as of yet.Swift Innovation of Technology: Crypto keeps evolving rapidly. New coins, apps, and platforms emerge almost every month. By the time a law is established, the technology might already have become outdated. Regulators struggle to keep up with the innovation. It also becomes harder to identify what needs to be regulated and how.Lack of Clear Definition: Governments and regulators are not always in agreement as to what a cryptocurrency is. Some regard it as a security, while others view it as a property or a commodity. In the absence of a definition, different regulations apply to the same cryptocurrency asset. This causes uncertainty to businesses and investors.Money Laundering and Crime Risks: Crypto is being used in illegal dealings since it’s more difficult to track compared to fiat money. It is being utilized by criminals to transfer money anonymously. Most nations are compelling exchanges to adhere to stringent know-your-customer (KYC) and anti-money laundering (AML) policies. However, there are some exchanges that use no such checks and balances. This makes it highly inconvenient to curb crime internationally.Investor Protection: Most people invest in cryptocurrencies without being aware of the risks involved. Scams and volatility are present in the market, and it’s not possible to get your money back when it’s stolen by fraud or hacking. Regulators are eager to keep the public safe, but don’t want to stifle innovation at the same time. It’s difficult to achieve a balance of freedom and security.Decentralized Platforms: Most crypto services are decentralized. No one group or entity controls them, and hence, it is hard to enforce laws against them since there is no single entity or group. It also poses the question of who is at fault when there’s a problem. Data Privacy vs. Regulation: Governments need to monitor cryptocurrency transactions to prevent fraud, but users need privacy and control of their data. Stricter regulation could limit privacy, and excessive privacy can enable criminal activity. Hence, it’s very difficult to balance these two.

What Are the IRS Rules for Crypto?

The IRS considers cryptocurrency as property. This implies that you need to report cryptocurrency trading activities on your tax return. Whether you sold, traded, received, or spent crypto, it definitely counts as a taxable event. You will also need to report any income or profit and answer some digital asset questions on your tax returns.

If you sell or trade crypto, you may owe capital gains tax. Short-term gains (held for less than a year) are taxed at rates between 10% and 37%. Long-term gains (held over a year) are taxed at 0%, 15%, or 20%, depending on your income.

If you receive cryptocurrency as a result of mining, staking, or airdrops, it will be treated as income. You need to report it on either Schedule 1 or Schedule C, depending on the business or hobby status of the activity.

From 2025 onward, cryptocurrency brokers will also need to report Form 1099-DA to the IRS. This reports your cryptocurrency transactions to the IRS, which will use it to match your reported income.

Does the SEC Regulate Crypto?

Yes, the SEC regulates some parts of the crypto market. Not all cryptocurrencies are under the U.S. Securities and Exchange Commission’s (SEC) jurisdiction. 

Only the cryptocurrencies that fall under the definition of a “Security” are regulated by it. This is according to the “Howey Test,” which tests whether the asset is an investment contract or not. 

If a crypto project raises money from investors with the promise of profits based on others’ efforts, the SEC may treat it as a security. Bitcoin isn’t a security, so the SEC doesn’t regulate it when you buy Bitcoin, which is why many investors freely explore how to buy Bitcoin through major exchanges. Ethereum was also viewed as a commodity for a while. However, in the year 2024, the SEC began reviewing Ethereum’s status once more, and this resulted in market controversy. 

The SEC also charged numerous crypto companies, including Ripple, Coinbase, and Binance, and alleged they had provided unregistered securities.

Crypto exchanges that handle securities have to register with the SEC or comply with its regulations. If they fail to do so, they risk being sued.