By Yaël Ossowski | Bitcoin Policy Institute
What is Bitcoin and why is it different?#
In the realm of digital assets and cryptocurrencies, bitcoin stands apart today as both a pioneer network and the dominating technology creating jobs, opportunities, and driving interest in the digital economy.
From a novel computing experiment to a real-time settlements network worth over $1.5 trillion, bitcoin has been catapulted to be a key asset for Wall Street firms and an important savings vehicle and financial technology for Main Street early adopters.
With a pre-programmed hard limit of 21 million units, a distributed network of software nodes verifying transactions, and a unique proof-of-work algorithm that creates an entire industry of hashing miners, Bitcoin has soared above its crypto-offspring and provided unique investing and business opportunities for Americans.
Bitcoin’s innovation in allowing exclusive self-custody, as well as its ease of use and global market liquidity, position it to be a key part of every young person’s financial journey. Unlike other tokens and crypto projects, Bitcoin has no central point of failure, no board of directors, and no central decisionmaker. It is a decentralized and distributed network governed by hard code.
Understanding Bitcoin’s popularity, growing adoption, and market domination, this brochure outlines the various areas of federal law that currently touch the use of Bitcoin.
As the nation’s legislative body, Congress has the ultimate ability and authority to ensure Americans remain free to use the technology, and allow the economic opportunities it provides to be shared by any American who wishes.
The purpose of this brochure is to inform legislative reforms aimed at reducing barriers to adoption, streamlining taxation, and minimizing regulatory complexity so that ordinary Americans can enjoy the fruits of innovation that Bitcoin provides.
Who and what regulates Bitcoin?
The regulatory and legal framework governing Bitcoin and its crypto-offspring in the United States is ever-evolving, thanks in large part to executive actions, legislative proposals, and shifting priorities from regulatory agencies.
President Donald Trump’s pledge to make America the “Bitcoin and Crypto Capital of the World,” as well as establishing the federal government's “Strategic Bitcoin Reserve,” demonstrate that positive legislative momentum is underway, and that Bitcoin is here to stay.
At present, the significant areas of codified US federal law that address Bitcoin are taxation on digital assets, financial regulatory jurisdiction between various independent agencies, and anti-money laundering and sanctions compliance.
In the US Code, those are represented in the following titles and sections:
7 U.S.C. § 1a(9) (Commodity Exchange Act)
15 U.S.C. § 77 et seq. (Securities Act of 1933)
31 U.S.C. § 5311–5332 (Bank Secrecy Act)
18 U.S.C. § 1956 (Money Laundering Conspiracies)
18 U.S.C. § 1960 (Money Laundering Prevention Act, Unlicensed Money Transmission Businesses)
In executing these laws, the agencies of concern are numerous including the:
Internal Revenue Service (IRS)
Securities and Exchange Commission (SEC)
Commodity Futures Trading Commission (CFTC)
Office of the Comptroller of the Currency (OCC)
Federal Reserve
Federal Deposit Insurance Corporation (FDIC)
Department of Energy (DOE)
and many more.
The impact of these laws and rules have been interpreted differently by competing agencies and administrations, and the American people would benefit from pro-innovation reforms in order to secure this nation’s standing as a place for Bitcoin to thrive.
TAXATION#
According to IRS guidelines and established law, bitcoin and all other cryptocurrencies and digital assets are classified as property, subjecting realized transactions to capital gains taxes and income taxes for bitcoin they may earn from mining, airdrops, or rewards. Every American that realizes a dollar gain from a purchase and sale of bitcoin is required to file this information on their annual tax returns.
Recent developments include:
IRS Form 1099-DA: Mandated for cryptocurrency brokers beginning January 2025, this form reports gross proceeds from crypto sales but excludes cost-basis data, complicating tax compliance for users.
De Minimis Taxation Legislation: Several bills introduced in both the House and Senate aim to exempt cryptocurrency transactions with capital gains from reporting those proceeds to the IRS if they are under a certain amount. This would reduce the amount of compliance required for retail users who may exchange bitcoin and other cryptocurrencies for goods or services.
Opportunities for reforms
Simplify Reporting: Replace Form 1099-DA with a unified system that tracks reported cost basis.
Clarify Income Tax Treatment: Exempt airdrops, mining rewards, and sales of bitcoin from income and capital gains taxes if held for longer than two years.
Pass a De Minimis Exemption Threshold (e.g., under $10,000 per transaction) to reduce compliance burdens for retail users, such as the Virtual Currency Taxation Fairness Act.
REGULATORY JURISDICTION#
Under the current regulatory rules and court interpretations, bitcoin is classified as a commodity. This de facto places bitcoin and associated derivatives markets under the regulatory auspices of the CFTC, but it has not yet been codified into law.
Recent developments include:
- FIT21 Act: Passed by the House in 2024, this bill clarifies jurisdictional boundaries, assigning the CFTC oversight of digital commodities (e.g., bitcoin) and the SEC authority over securities-like tokens.
Opportunities for Reform:
- Adopt FIT21’s Framework: Codify the CFTC’s oversight role of bitcoin markets to eliminate ambiguity and foster innovation in non-security crypto projects.
FINANCIAL SERVICE INTEGRATION#
In the first few months of President Trump’s administration, certain regulatory changes by agencies have helped to cement bitcoin as a mature asset that institutions and individuals should be free to use.
While many of these changes have not yet been codified into law, there are opportunities for simplifying and clarifying Americans’ access to bitcoin.
Recent developments include:
Policy changes at the OCC and the SEC now allow national banks to offer crypto products and custody bitcoin and its crypto-offspring, hold stablecoin reserves, and participate in blockchain networks without prior approval.
The FDIC has rescinded 2022 guidance requiring pre-approval for crypto activities, thus enabling FDIC-supervised institutions to engage in permissible services.
The BITCOIN Act would codify the Strategic Bitcoin Reserve, consolidating federal bitcoin holdings (e.g., 207,000 BTC worth $17 billion) under Treasury management, likened to a “digital Fort Knox”.
In 2022, Fannie Mae issued a Selling Guide that prohibits Virtual Currency (including bitcoin) from being considered an asset for the purpose of a borrower seeking home financing.
Opportunities for Reform:
Codify regulatory changes that allow financial institutions to send, receive, buy, sell, and conduct all operations related to bitcoin and cryptocurrencies.
Issue regulatory guidance to allow bitcoin and other cryptocurrencies to be considered assets for the purpose of home financing.
Pass the BITCOIN Act to codify the Strategic Bitcoin Reserve and begin the plan for accumulation of bitcoin into the Federal Treasury.
ANTI-MONEY LAUNDERING (AML) AND SANCTIONS#
Bitcoin and cryptocurrency businesses that transmit money on behalf of clients, and allow clients to buy and sell cryptocurrencies on their platforms are considered to be “money service businesses” that must register with both state authorities and the Department of Treasury’s Financial Crimes and Enforcement Network (FinCEN).
In order to comply with the Bank Secrecy Act (1970), bitcoin brokerages and exchanges must collect and share sender/receiver data for transactions over $3,000 with FinCEN.
Federal agencies will then use blockchain analytics to screen wallets for ties to sanctioned entities or illicit activities, as deemed appropriate by law enforcement agencies with probable cause.
As Bitcoin is a decentralized network protocol, innovators and developers offer noncustodial tools to users that do not require the transmission of funds, and allow users to more effectively and securely safeguard their bitcoin on their self-custody wallets.
Until this year, this has been wrongly considered within the scope of Bank of Secrecy Act regulations, which led to federal indictments of developers and entrepreneurs offering these tools to users.
Recent developments include:
Ending Regulation by Prosecution: In April 2025, Deputy Attorney General Todd Blance issued a memo iterating that the Department of Justice “will no longer target virtual currency exchanges, mixing and tumbling services, and offline wallets for the acts of their end users or unwitting violations of regulation.”
Repeal of Noncustodial broker Rule: In April 2025, President Trump signed a law overturning a Biden-era regulatory rule defining decentralized platforms as brokers, which required these platforms to collect tax information and perform anti-money laundering checks as required by the Bank Secrecy Act.
Safe Harbor for Noncustodial developers: Rep. Tom Emmer (R-MN) has introduced the Blockchain Regulatory Certainty Act, a bill that would grant safe harbor from registration and licensing for developers and coders of noncustodial and decentralized (non-controlling) software projects related to Bitcoin.
Opportunities for Reform:
Specifically exempt Decentralized Protocols and Bitcoin projects from BSA compliance: Decentralized Bitcoin and other cryptocurrency projects that do not hold cryptographic keys and do not hold or receive funds on behalf of clients should be exempt from all AML/KYC regulations as required by the Bank Secrecy Act.
Congress should consider Rep. Tom Emmer’s Blockchain Regulatory Certainty Act.
Developers of noncustodial protocols that deal with Bitcoin and its crypto-offspring should be exempt from all Money Service Business regulations, reporting, and compliance.
For bitcoin entities that are Money Service Businesses, the reporting threshold should be raised to at least $10,000 to align with cash transaction standards.
Congress should consider Sen. Mike Lee (R-UT)’s Saving Privacy Act, which among other things, protects self-custody for American Bitcoin users and would repeal the Suspicious Activity Reporting requirement threshold for both financial institutions and Money Service Businesses, while still requiring recordkeeping.
Conclusion: Pro-Innovation Congressional Reform for Bitcoin Users#
To align federal policy with the goals of reducing friction and fostering adoption for Americans who want to use Bitcoin, Congress should prioritize:
Tax Simplification: Streamline reporting, exempt small transactions from capital gains calculations, and clarify income classifications.
Regulatory Clarity: Codify the SEC/CFTC jurisdictional split and limit enforcement overreach.
Banking Access: Formalize federal guidelines for crypto-friendly banking and lending services.
AML Modernization: Tailor rules to minimize burdens on decentralized ecosystems and innovators.
By addressing these areas, the U.S. can transition from a patchwork of reactive policies to a coherent framework that positions Bitcoin as a pillar of economic innovation and inclusion.
Originally published at the Bitcoin Policy Institute.
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