Whether a crypto token is legal depends on where you live and what you plan to do with it. According to Wikipedia’s country-by-country overview, the legal status of cryptocurrencies varies substantially from one jurisdiction to another and is still undefined or changing in many of them. That means the honest answer is rarely a simple yes or no: owning a token may be perfectly lawful while certain ways of selling or marketing that same token are restricted.
How token sales are regulated
The sale of cryptocurrency is generally only regulated if the sale constitutes the sale of a security under state or federal law, or if it is considered money transmission under state law or conduct otherwise making the person a money services business (MSB) under federal law. In practice, this means a token can change hands lawfully in a private sale while a business that facilitates those sales may need registration and a compliance program.
It also helps to separate “legal to own” from “legal tender”. Cryptocurrencies are not considered legal tender by the Financial Crimes Enforcement Network (FinCEN), even where owning and trading them is allowed.
Securities treatment is evolving as well. The SEC’s guidance on crypto assets and the federal securities laws notes that a payment stablecoin is used as a means of payment or settlement and, subject to the terms of the GENIUS Act, is generally not a security.
Is investing in crypto legal?
In the United States, yes. Cryptocurrencies such as Bitcoin have been legal in the United States since February 2020. The picture is similar across much of the global economy: the Atlantic Council’s cryptocurrency regulation tracker reports that in twelve G20 countries, representing over 57% of the world’s GDP, cryptocurrencies are fully legal.
Can lawyers accept cryptocurrency?
Yes — lawyers are beginning to accept Bitcoin from clients. Bitcoin is a digital currency, also known as virtual currency or cryptocurrency, since cryptography is used to control its creation and transfer.
A legal specialty has grown up around digital assets, too. Cryptocurrency lawyers advise money services businesses and money transmitters on their registration requirements, work with venture capital firms on transactions involving blockchain-related companies, and advise intermediaries in the cryptocurrency economy — including brokers and exchanges — on their compliance obligations.
Can you sue a cryptocurrency exchange?
Cryptocurrency and blockchain litigation can take the form of a class action or a single suit. Some people suing entire cryptocurrency exchanges sue as a class in the hopes of assisting all of those affected.
For smaller disputes with companies such as Coinbase or Crypto.com, small claims court is an option. The process typically involves preparing and filing the lawsuit using the proper form, which is usually available for download on your local small claims court website, notifying the company by serving it correctly, and then preparing for your hearing.
Jurisdiction matters, though. Investors, in the main, can only sue when they traded securities on U.S. exchanges or, in rarer instances, when they engaged in crucial trading activities inside the U.S. In a New York case involving Binance trades, the court held that the trades at issue met neither test. And if your dispute is with Kraken, you will probably have to go to arbitration rather than open court.
Crypto and the IRS
Legality also brings tax obligations. The IRS requires that you report all sales of crypto, as it considers cryptocurrencies property. Crypto losses can be used to offset capital losses and, within limits, deducted from your income.
Exchanges cooperate with tax authorities as well. Kraken, for example, does report to the IRS, so transactions on the platform should not be treated as invisible to tax collection.
Where legal trading happens: Kraken, Coinbase and Binance
Kraken is a cryptocurrency exchange where you can buy and sell assets such as Bitcoin and Ethereum, and it is among the oldest Bitcoin exchanges. Jesse Powell, a founder of Kraken, built it into one of the world’s largest cryptocurrency exchanges.
Coinbase takes a different approach. With widely available apps, hot wallet features, and funding options that include PayPal and debit cards, Coinbase users tolerate higher fees for a more convenient way to fund their accounts and make withdrawals. For U.S. traders who value user experience over cost, Coinbase is generally a better choice than Kraken.
Binance, meanwhile, illustrates how closely regulators watch the industry’s biggest players: the Wall Street Journal has reported that the Securities and Exchange Commission is investigating the relationships between Binance.US and two firms owned by Binance founder Changpeng Zhao.
The bottom line
Owning and trading crypto tokens is legal in the United States and across much of the global economy, but legality is layered: securities law, money-transmission rules, and tax reporting all apply depending on what you do with a token. Before buying, selling, or launching one, check how your jurisdiction treats securities, money transmission, and taxes — and when the stakes are high, speak with a lawyer who works in this area.
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