The adoption of cryptocurrency by businesses is growing rapidly. Digital assets like Bitcoin and Ethereum are now used for payments, investments, payroll, and more. This technology promises efficiency, speed, and global reach. However, legal and regulatory obligations remain complex and continue to evolve. The regulatory landscape is marked by a patchwork of overlapping federal and state requirements. Businesses that use or plan to use cryptocurrency must understand their legal responsibilities to avoid regulatory pitfalls and reduce risk. The following article reviews the major legal issues that businesses face when integrating cryptocurrency, and provides practical guidance on how to manage them.
Please note this blog post should be used for learning and illustrative purposes. It is not a substitute for consultation with an attorney with expertise in this area. If you have questions about a specific legal issue, we always recommend that you consult an attorney to discuss the particulars of your case.
Regulatory Landscape
The United States does not have a single law or regulatory agency that governs cryptocurrency. Instead, oversight is divided among several federal bodies, including the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Financial Crimes Enforcement Network (FinCEN), and the Internal Revenue Service (IRS). Each agency interprets digital assets under its own rules and statutes, often resulting in overlapping and sometimes conflicting guidance. For example, the SEC regulates certain tokens as securities, while the CFTC may classify other tokens as commodities. This creates an uncertain compliance environment for businesses.
In addition to federal oversight, each state applies its own licensing and regulatory rules to cryptocurrency activities. Some states require money transmitter licenses, while others have enacted more specific regulations or, in rare cases, outright bans on certain activities. Michigan, for example, is taking steps to encourage innovation by proposing legislation that protects digital asset rights, enables public investments, and encourages environmentally beneficial crypto mining. For businesses operating in multiple states, this fragmented regulatory environment adds significant operational and legal complexity.
Federal Regulation
Federal agencies have taken the lead in shaping the legal framework for cryptocurrency. The SEC enforces federal securities laws and closely monitors whether certain digital assets are securities under the Howey test. This legal standard looks at whether investors expect to profit from the efforts of others, a test that has brought many token sales and Initial Coin Offerings (ICOs) under the SEC’s jurisdiction. Publicly traded companies that hold or issue cryptocurrency are required to provide extensive disclosures in their financial filings, including the valuation of assets, risk factors, and exposure to volatility. The SEC’s enforcement actions often focus on unregistered offerings and misrepresentation.
The CFTC plays a central role when digital assets are classified as commodities. Its main responsibility is to protect the integrity of derivatives and futures markets, prevent fraud and manipulation, and oversee digital commodity exchanges. The CFTC’s authority does not generally extend to the direct sale of tokens, unless derivatives or leverage are involved. Proposed federal legislation may soon clarify the CFTC’s power and give it explicit jurisdiction over digital commodities, narrowing the reach of state regulations and streamlining oversight for exchanges and brokers.
FinCEN, meanwhile, regulates most cryptocurrency businesses as Money Services Businesses (MSBs). This designation brings with it significant anti-money laundering (AML) and know-your-customer (KYC) obligations. MSBs must register with FinCEN, implement internal compliance programs, and file suspicious activity reports. FinCEN has been quick to penalize unregistered businesses and those that do not meet AML standards, making compliance a top priority for any company operating in the cryptocurrency sector.
The IRS treats cryptocurrency as property rather than currency. This means every transaction—whether a payment, sale, or exchange—triggers a taxable event. The IRS requires businesses to keep detailed records of each transaction’s fair market value in U.S. dollars, and report all income, gains, or losses accordingly. The agency has increased scrutiny in recent years, warning that non-reporting or under-reporting can result in audits and penalties.
Additional agencies such as the Federal Reserve, FDIC, OCC, OFAC, FTC, and CFPB have also asserted regulatory interests. These agencies focus on banking system risks, sanctions compliance, and consumer protection. Their actions further increase the compliance burden and make it essential for businesses to have comprehensive internal controls and legal oversight when handling cryptocurrency.
State Regulation
State-level regulation of cryptocurrency adds another layer of complexity for businesses. Each state applies its own approach to licensing, compliance, and permissible activities involving digital assets. Some states, such as New York, have developed strict licensing regimes that require businesses to obtain a BitLicense, submit to regular examinations, and follow detailed compliance protocols. These frameworks often impose higher operational and legal costs, but also offer a clearer path to regulatory certainty for businesses operating in those jurisdictions.
Other states take a more permissive stance. For example, Michigan has introduced a legislative package intended to foster digital asset innovation and attract crypto businesses. This includes protecting the right to own and use cryptocurrency, permitting certain public investments, and encouraging the use of abandoned infrastructure for environmentally responsible mining. Such initiatives are designed to provide legal clarity and encourage growth in the digital asset sector, while still addressing consumer protection and environmental concerns.
The patchwork nature of state laws makes multi-state compliance a challenge. Businesses must navigate a landscape where a transaction considered lawful in one state may be subject to licensing, reporting, or even outright prohibition in another. For companies looking to expand nationally, it is essential to conduct a thorough review of each state’s rules before entering the market or offering services across state lines.
Securities Law
Securities law is one of the most important and complex areas for any business dealing with cryptocurrency. The SEC applies the Howey test to determine whether a digital asset qualifies as an “investment contract.” If so, the asset is regulated as a security, and the issuer must either register it or find an exemption. This applies to most ICOs and some other token offerings. Businesses that fail to comply risk SEC enforcement, which can result in fines, disgorgement, and reputational harm.
For public companies, holding or transacting in cryptocurrency triggers additional disclosure obligations. The SEC requires companies to report digital asset holdings, associated risks, and the fair value of crypto assets on their balance sheets. Changes in regulatory guidance and enforcement priorities can have immediate financial and operational implications. In recent years, the SEC has issued clarifying guidance for broker-dealers and transfer agents, providing more flexibility but also emphasizing the need for detailed internal controls and transparency.
The classification of an asset as a security or commodity determines which regulations apply. Businesses must regularly assess their token offerings and business models in light of evolving guidance. The risk of enforcement remains significant, especially for companies operating in areas of regulatory uncertainty or relying on ambiguous interpretations of existing law.
Anti-Money Laundering and KYC
The anti-money laundering (AML) and know-your-customer (KYC) obligations for cryptocurrency businesses are comprehensive and non-negotiable. FinCEN considers most companies that transmit, exchange, or hold cryptocurrency for others to be Money Services Businesses (MSBs). This requires registration with FinCEN, implementation of a risk-based AML program, and regular reporting of suspicious transactions. Businesses must conduct customer due diligence, maintain records, and train staff on compliance procedures.
Non-compliance with AML and KYC rules can result in severe penalties, including large fines and, in some cases, criminal charges. The risk extends not only to the company, but also to individual officers and employees responsible for oversight. FinCEN and other regulators update their guidance frequently, requiring businesses to continuously monitor and update their compliance programs to align with national and international priorities.
International coordination is also increasing. Bodies such as the Financial Action Task Force (FATF) promote global AML standards, and U.S. firms operating overseas must ensure they do not inadvertently violate foreign rules. The pseudonymous nature of many cryptocurrency transactions further complicates compliance, as companies must deploy advanced tools to track and verify the identities of customers and counterparties.
Taxation
Taxation of cryptocurrency is a major operational and legal issue for businesses. The IRS treats all virtual currency as property for tax purposes. This means every transaction—including payments, sales, or exchanges—creates a taxable event. Businesses must calculate and report the fair market value of digital assets in U.S. dollars at the time of each transaction. This requirement applies to payments for goods and services, capital gains on sales, and even rewards from mining or staking activities.
Detailed recordkeeping is essential to comply with tax law and avoid penalties. Businesses must maintain transaction histories, supporting documentation, and valuations. Failure to properly account for crypto transactions can result in audits, back taxes, and fines. The IRS has increased scrutiny, adding specific questions about digital assets to tax forms and launching enforcement initiatives targeting under-reporting.
Employers who pay workers in cryptocurrency face additional complexities. The value of crypto paid to employees must be reported as wages, subject to payroll taxes and withholding in U.S. dollars. The IRS is introducing new reporting forms for brokers and platforms to further increase transparency and compliance in the crypto ecosystem.
Commercial Transactions and Smart Contracts
The use of cryptocurrency in commercial transactions introduces novel legal issues. Unlike traditional contracts, smart contracts are self-executing programs coded onto a blockchain. While they can automate and streamline business relationships, smart contracts are not always recognized as legally binding in the same way as traditional agreements. State laws differ on whether and how such contracts can be enforced, and questions often arise around intent, modification, and dispute resolution.
To address these challenges, businesses are increasingly adopting hybrid approaches. They combine traditional written agreements with smart contract execution, ensuring that there are clear terms, legal recourse, and dispute resolution mechanisms outside the blockchain. This approach provides more certainty and reduces the risk of unenforceable transactions or unintended consequences due to programming errors.
The IRS’s treatment of cryptocurrency as property further complicates commercial use. Each transaction involving digital assets must be valued and reported for tax purposes. When purchasing property or goods with cryptocurrency, businesses must carefully document the transaction and consult legal counsel to ensure that both the contract and payment method are recognized and enforceable under applicable law.
Employment Law
Paying employees in cryptocurrency presents unique legal and tax challenges. Under federal law, specifically the Fair Labor Standards Act (FLSA), wages must be paid in cash or negotiable instruments. Cryptocurrency does not meet this definition, due to its volatility and status as property rather than legal tender. As a result, most employers cannot use cryptocurrency to pay base wages, particularly for non-exempt employees.
At the state level, the legal environment is similarly restrictive. Some states explicitly require that wages be paid in U.S. dollars, and others limit the use of non-cash instruments to specific circumstances. Employers considering crypto payments must obtain written employee consent and typically use digital assets for bonuses or contractor payments rather than regular wages. Employers must also withhold and remit taxes in U.S. dollars, which generally requires converting crypto payments to fiat before remittance.
Additional complications arise from the IRS’s property classification of cryptocurrency. The fair market value of any crypto paid to employees must be calculated and reported as income. Employees may also incur capital gains taxes if they later sell or convert the crypto at a higher price. Employers must keep detailed records of all transactions and ensure timely tax filings to avoid penalties.
Real Estate
Real estate transactions involving cryptocurrency are becoming more common but remain legally complex. Most U.S. jurisdictions require official documentation and recording of property transfers. However, transactions conducted entirely on a blockchain or via non-fungible tokens (NFTs) may not be recognized as legally binding. As a result, parties must supplement blockchain transactions with traditional legal documentation to ensure valid title transfer and compliance with state property laws.
NFTs offer the possibility of fractional ownership, more transparent records, and efficient trading of real estate interests. However, U.S. law generally does not recognize blockchain records as proof of legal ownership. Instead, NFT transactions often represent a beneficial interest that must be accompanied by conventional legal agreements and title registration. AML and KYC requirements apply to these deals, as with any high-value asset transfer.
Tax and reporting requirements further complicate the use of crypto in real estate. Each transaction is a taxable event under IRS rules. If cryptocurrency used for payment increases in value between acquisition and use, capital gains tax may apply. Legal counsel is necessary to structure these transactions and avoid disputes over ownership, tax liability, or compliance failures.
Litigation and Dispute Resolution
The rapid growth of the cryptocurrency sector has led to a surge in litigation. Cases often involve allegations of fraud, breach of contract, or regulatory violations. Fraud cases include Ponzi schemes, misrepresented token offerings, and theft by insiders or hackers. Smart contract disputes arise when code does not reflect the intent of the parties, or when there is ambiguity over the enforceability of automated agreements.
Jurisdictional issues create additional complexity. The global, decentralized nature of cryptocurrencies makes it difficult to determine which courts have authority to hear disputes. Courts in the United States have started to adapt by treating crypto assets as property and allowing alternative methods of service, such as sending legal documents via NFTs to blockchain addresses. However, asset recovery can be challenging, particularly when parties or assets are located outside the country.
Businesses must anticipate litigation risk by drafting clear agreements, incorporating traditional dispute resolution clauses, and investing in cybersecurity to prevent theft or loss. Working with legal counsel experienced in crypto litigation is increasingly important, given the technical and procedural hurdles unique to this area.
Cybersecurity and Consumer Protection
Cybersecurity is a critical concern for businesses using cryptocurrency. Digital assets are attractive targets for hackers and are vulnerable to loss through security breaches, phishing, or mismanagement of private keys. Failure to implement adequate security controls exposes a company to both financial loss and legal liability. Regulatory agencies such as the FTC and CFPB have taken enforcement action against crypto firms that fail to protect customer data or misrepresent the safety of their platforms.
Best practices include securing digital wallets with multi-signature technology, using cold storage for large balances, and conducting regular security audits. Companies must also comply with data protection laws and maintain robust incident response plans. Security failures can trigger regulatory investigations, loss of customer trust, and substantial financial penalties.
Consumer protection is a growing focus for regulators. Agencies warn about the risks of fraud, false advertising, and deceptive practices in the crypto sector. Businesses must implement transparent policies, provide accurate information, and respond promptly to consumer complaints. These steps are essential not only for legal compliance but also for building trust in a rapidly evolving market.
Risk Management and Compliance
Comprehensive risk management is essential for any business engaging in cryptocurrency activities. Internal controls should include real-time transaction tracking, secure asset custody, and detailed audit trails. Written policies and procedures must address detection and correction of compliance violations. Companies should appoint a compliance officer with authority and expertise to oversee these programs, and conduct periodic audits to ensure ongoing effectiveness.
Engaging specialized legal and tax counsel is no longer optional. Cryptocurrency law is highly technical and rapidly changing. Businesses must partner with advisors who have experience in securities, tax, and financial regulation specific to digital assets. This ensures that token classification, contracts, payroll, and reporting are managed according to current law.
Ongoing monitoring of the regulatory environment is crucial. Federal and state agencies frequently update their rules and guidance. International developments, such as the European Union’s MiCA regulation, may also affect U.S. firms, especially those operating globally. Regular compliance reviews and proactive adaptation to new standards reduce legal risk and support business growth.
Conclusion
The integration of cryptocurrency into business operations creates both opportunity and risk. The legal environment is complex, fragmented, and rapidly evolving, requiring businesses to adopt a careful and comprehensive approach to compliance. Key areas of concern include securities law, AML and KYC rules, tax, employment law, real estate, litigation, and cybersecurity. Businesses must implement robust internal controls, consult with specialized legal and tax advisors, and stay informed about regulatory developments at both the federal and state levels. By doing so, companies can take advantage of digital assets while minimizing exposure to legal and financial penalties, ensuring lawful participation in the digital economy.
Contact Tishkoff
Tishkoff PLC specializes in business law and litigation. For inquiries, contact us at www.tish.law/contact/. & check out Tishkoff PLC’s Website (www.Tish.Law/), eBooks (www.Tish.Law/e-books), Blogs (www.Tish.Law/blog) and References (www.Tish.Law/resources).
Further Reading
- Cryptocurrency laws and regulations – Thomson Reuters Legal Solutions, https://legal.thomsonreuters.com/blog/cryptocurrency-laws/
- Digital assets | Internal Revenue Service, https://www.irs.gov/filing/digital-assets
- Michigan to the moon! Lawmakers introduce bipartisan cryptocurrency legislation, https://gophouse.org/posts/michigan-to-the-moon-lawmakers-introduce-bipartisan-cryptocurrency-legislation
- Crypto Regulation: Who Will Protect Consumers Against Fraud, https://www.skadden.com/insights/publications/2025/02/crypto-regulation-who-will-protect-consumers
- Senate passes crypto bill, https://apnews.com/article/crypto-stablecoins-trump-senate-383b502d3d80169f8f4739055dada0cb