Bitcoin is the most highly coveted cryptocurrency of all, the proverbial king of crypto and the coin with the greatest capitalization. But it’s also a coin shrouded in uncertainty and surrounded by legal conundrums. The question of whether Bitcoin is legal has been on the lips of almost every would-be enthusiast of the crypto industry ever since its inception, as the fear of being involved in illegal dealings due to trading Bitcoin runs high among those who have not delved into the intricacies of the market. The fact of the matter is that every country has its own legal standing toward Bitcoin, and proper research on the legislation of the country in question is key when deciding to embark on the journey of crypto trading.

Bitcoin is under question in the US, given its highly fragmented legal system and the myriad of laws that vary from state to state. The SEC is in charge of regulating the circulation and legal status of Bitcoin at the US federal level and has stated that Bitcoin is not a commodity or security. Meanwhile, the CTFC has designated Bitcoin as a commodity in the US.

The question of whether Bitcoin is legal varies from state to state, and though it’s legal to buy Bitcoin in the US, some states, such as New Hampshire, require the buyer to get a money transmitter license. California is in a legal limbo, since it does not yet have any clear regulation on the status of Bitcoin.

The majority of states in the US, however, do not have any explicit laws forbidding the sale, purchase, or circulation of Bitcoin, since the status of the cryptocurrency is not defined and it is therefore not regulated.

There are many questions that arise regarding the status of Bitcoin in the US. Some activities are legal, while others are questionable.

The question of whether cryptocurrency mining is legal looms quite acutely before those thinking of setting up mining rigs. It’s perfectly legal to mine Bitcoin in the United States, but since it’s designated as a commodity, capital gains have to be reported for tax purposes.

The question of whether it is legal to buy Bitcoin in the US is quite clear as well, since according to the US Treasury Department’s Financial Crimes Enforcement Network, as of 2013, using Bitcoin to purchase well-natured goods and services is not illegal. According to the guidelines set by the organization, it’s legal to invest in Bitcoin as well, and crypto is acceptable as a form of payment if the seller of the goods or services is ready to render the service or sell the goods for Bitcoin.

Another curious question is whether Bitcoin gambling is legal in the US. The current legal framework in most states of the US gives no clear or rigid guidelines or stipulating laws that would in one way or the other state that betting in Bitcoin or any other cryptocurrency in online casinos is illegal. There are a number of online casinos accessible in the US via the internet that accept Bitcoins as a means of betting. Bitcoin poker is fully legal in online casinos that allow players to set Bitcoin as a payment method for the game or as stakes. The legal status of Bitcoin lotteries is the same as that of gambling and is not explicitly forbidden by any US regulations.

Whether it’s legal to trade Bitcoin is a more complex question to answer, since the multitude of legal entities in the US set various barriers and definitions to the issue of trading. The SEC examines ICOs and looks carefully only at the status of Bitcoin as a security and therefore focuses on particular transactions. The CTFC is more friendly toward Bitcoin and has even allowed the creation of Bitcoin futures, which allows them to be traded freely on the market. The Internal Revenue Service looks at Bitcoin as any other asset and expects sellers and traders to report their earnings for tax purposes, just like with any other tradable asset.

The issue of licenses for trading Bitcoin is more related to individual states, since there is no unified law on crypto in the US. The most widespread license that Bitcoin traders or holders need to get in many states for operations with Bitcoin in the US is the money transmitter license, which is explained by FinCen as follows:

“A Money Transmitter falls within the federal definition of a Money Services Business (MSB).

A business is an MSB and must register if it conducts more than $1,000 in business with one person in one or more transactions (in any category of activity listed below) on the same day in one or more of the following services:

  • Money Orders
  • Traveler’s Checks
  • Check Cashing
  • Currency Dealing or Exchange
  • OR the business provides Money Transfer services in any amount.”

Bitcoin Regulation in Separate States

Every state in the US has its own legislation regarding cryptocurrency, and though the majority of states do not have any defined requirements for crypto, some have formulated quasi-laws and requirements for Bitcoin holders.

The attitude of states towards crypto can generally be classified as moot, indifferent, friendly, or hostile. The majority of states have no opinion on cryptocurrency. Some, like Colorado, Delaware, Florida, Kansas, and others, have adopted regulations and requirements for crypto. The state of Nevada has even banned the taxing of smart contracts or blockchain technology.

Some states are hostile towards crypto. For instance, Connecticut has introduced requirements for money transmitter licenses. The state of Hawaii banned all crypto operations in 2014 but lifted the ban in 2018 and placed all related operations under money transmitter licenses. New York, New Mexico, and other states are also hostile toward Bitcoin and require money transmitter licenses for operations with crypto.

Other Countries

Cryptocurrency is being regulated in other countries as well. So far, Japan is the only country to have declared Bitcoin as legal tender. Bitcoin is legal in Japan, and many stores accept it as a means of payment. Despite the seemingly progressive stance Japan has taken on Bitcoin, however, the country’s authorities have recently been cracking down on exchanges, forcing them and many others to adopt better security measures.

Given that the US is considered the leading country in issues related to Bitcoin regulation, the country’s neighbors, such as Canada, have also been affected. The question of whether buying Bitcoin is legal in Canada is a popular one on search engines. In fact, Canada was one of the first countries to draw up Bitcoin legislation (as early as 2014). The Canadian government has made it clear that Bitcoin is not legal tender, and all transactions with Bitcoins in the country are taxable.

Many other countries are still debating the status of Bitcoin and have not yet reached a consensus on the matter. For instance, the United Kingdom has not deemed Bitcoin a commodity and has no desire to regulate it yet. The Russian government is still mulling over the draft law on cryptocurrency, and after many readings in the State Duma, there is no clear timeline as to when the law will be adopted. The European Union in general has no consensus on Bitcoin and cryptocurrency, but the European Central Bank is pushing toward tighter control over operations with digital currencies.

Looking Back

The essence of Bitcoin is trading it and making profit from operations with it and other digital assets. If the question of location arises, US residents should look at Bitcoin-friendly states to avoid the scrutiny of tax authorities and other state regulators overseeing anti-money laundering laws. If the question of location still stands with no boundaries before the trader, moving to a crypto-friendly country like Japan is a good option to fully enjoy the freedom of using crypto in everyday life.

Obtaining a money transmitter license is the most sure-fire way of ensuring freedom in trading Bitcoin in many states of America, and it’s highly advised for would-be traders to consider the option. Regardless of the legal uncertainty around Bitcoin, it’s still the king of crypto and will be attracting enthusiasts for years to come.

Disclaimer

This article does not constitute an offer or legal counsel of any kind. All actions taken by the reader upon reading this material are their sole responsibility. It is highly advised to seek legal counsel on all legal matters prior to taking any action. The information contained in this article is presented as is and does not constitute legal counsel of any kind. When reading this article, the reader agrees that they voluntarily bear all possible risks, losses, fines, etc. incurred as a result of actions taken related to the reading of this material.