Is Crypto Trading Illegal?

By Krasimir Hristov

Cryptocurrency trading has quickly become a lucrative means to capitalize on price volatility of digital currencies. Traders can utilize leverage to either increase their gains or losses depending on their risk profile and financial management skills.

One of the more well-known uses for cryptocurrency is sending international payments quickly and cost effectively; however, there can be risks involved with this form of transaction.


Cryptocurrency trading refers to the practice of purchasing and selling digital assets for profit from price differences between buy and sell prices. Trading can be highly risky; only invest money you can afford to lose. Before beginning to trade cryptocurrency in any jurisdiction (e.g. US), be aware of your local regulatory rules – in some instances this might mean registering with a broker and verifying your identity before engaging.

There are various factors that influence the cost of cryptocurrency, including supply and demand, market sentiment and technological developments. Some cryptocurrencies have finite supplies; sudden increases or decreases in demand could have dramatic ramifications on their prices. Furthermore, cryptocurrency technology continues to progress rapidly, which means new developments may have an immediate effect on their value.

Volatility is another key element that determines the price of cryptocurrency. A higher volatility indicates greater risks when trading, potentially leading to large losses without proper planning and stop loss protection from your broker. Therefore, selecting one with low spreads and tight stops is highly recommended for optimal trading results.

Brokers may charge fees to open accounts or transfer funds – this fee is known as a transaction fee and can become quite costly. To avoid this scenario, look for a reliable broker with regulation who offers multiple coins as well as checking its terms and conditions before choosing them as your broker of choice.

Legal aspects of cryptocurrency trading are complex and vary by regulator; for example, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) often take different perspectives on their legal status. To address this discrepancy between SEC and CFTC views on cryptocurrencies, however, the proposed Digital Trading Clarity Act seeks to harmonize regulatory responses by clarifying definitions of digital assets under existing securities laws and related liabilities that arise under them.

Legality of crypto trading in the US depends largely on whether it occurs on a regulated exchange or unregulated over-the-counter (OTC) platform, with OTC platforms offering no identity verification of their users, making them attractive to criminals looking to launder illegally acquired crypto currencies and difficult to prosecute due to no oversight by an authoritative body or central regulator.


Cryptocurrency trading involves buying and selling digital currencies for profit from their fluctuating values. This differs from investing directly in cryptocurrency, which typically involves holding them over a long-term period. Unfortunately, cryptocurrency trading is unregulated and may be susceptible to fraud or manipulation – therefore investors should review any platforms they are considering using for trading as well as potential brokers before engaging in cryptocurrency trades.

The regulatory environment for cryptocurrency investments is rapidly developing. The US government has several agencies dedicated to managing virtual currency risks associated with investments, including the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Department of Justice (DoJ). Each organization approaches market regulation differently; for example, the CFTC oversees derivative markets and has begun taking enforcement actions against cryptocurrency firms while SEC has broad powers to oversee securities regulation.

Some lawmakers are seeking legislation to improve the regulatory environment. Their goal is to ensure digital assets are appropriately classified, that brokers disclose product details about products offered and that tax rules are clear – such as reporting cryptocurrency gains to the IRS but being allowed to claim loss on taxes even when purchasing it back at a lower price immediately afterwards.

Concerns surrounding cryptocurrencies stem from their lack of central bank backing. As a result, they’re subject to all of the forces that influence other currencies, such as inflation data and interest rates. Furthermore, many cryptocurrency exchanges based outside the U.S. make it harder for law enforcement to track fraudsters or manipulators and prosecute those engaging in these schemes.

Some states are already taking steps to safeguard investors by creating their own regulations for cryptocurrency trading. New York Attorney General Cyrus Vance has filed several cases against illegal platforms offering cryptocurrency-trading, including one which recovered $24 million for investors and shut down the platform in question. He has also worked closely with his state’s financial regulator in developing anti-money laundering rules for cryptocurrency transactions.


Cryptocurrency trading raises complex tax considerations for investors trading multiple coins. The IRS recognizes cryptocurrencies as property transactions subject to capital gains taxes. Therefore, traders need to carefully keep records and calculate any profit or losses on every trade they conduct.

The IRS now requires traders to answer a question on their tax returns regarding whether or not they received or sold digital assets within the last year, and enforcement has increased accordingly; one case saw both DOJ and SEC file insider trading charges against a former Coinbase product manager who used material non-public information to buy cryptocurrency assets before their listing would become official on his platform.

Investors can avoid paying capital gains taxes on cryptocurrency sales by holding it in a tax-deferred or tax-free account such as a traditional or Roth IRA. Traders can reduce taxes by purchasing and selling cryptocurrency to generate long-term capital losses; these losses must, however, be calculated correctly to prevent overstating them.

Crypto trading can be an inherently risky activity, so it’s crucial that you understand its inherent dangers before getting involved. Not only are cryptocurrencies susceptible to losing value over time but hackers and thieves can exploit any unregulated platforms on which they trade; indeed, the SEC has shut down multiple of these untrustworthy trading platforms with cease-and-desist orders issued against their operators.

Investors can safeguard themselves by selecting trustworthy exchanges and avoiding high-risk trades. Furthermore, the IRS is working on rules to help combat illegal crypto trading activities. Under the proposed Digital Trading Clarity Act, exchanges would need to identify their customers and implement anti-money laundering and counterterrorist financing programs. This bill would ensure exchanges abide by federal securities laws and combat market manipulation attempts by mandating they disclose relevant facts and pricing information. Furthermore, this legislation aims to harmonize digital asset regulation with two primary issues at hand: (1) classifying cryptos as securities; and (2) liabilities under existing securities laws.


Cryptocurrency trading has become an increasingly popular activity, yet there are risks involved with entering this market. These risks include security, regulatory issues and price volatility of cryptocurrency. To reduce these risks and safeguard yourself appropriately, use only reputable brokers and follow all cryptocurrency security guidelines, including using 2 factor authentication, air gapped devices and never sharing passwords with anyone. Furthermore, avoid storing cryptocurrency on digital wallets or exchanges that do not comply with security standards.

Although most crypto transactions take place through centralized exchanges, they remain vulnerable to hacking and other forms of fraud. Some of the largest crypto exchanges have already fallen victim to multiple cyber-attacks in recent months that caused massive losses as well as compromise your wallets or accounts’ security.

Security of cryptocurrency investments is of utmost importance for newcomers to the market. Before trading begins, it is vital that you check local and state laws pertaining to crypto trading as well as invest only with trustworthy brokers. When conducting transactions via public wifi connections or with untrustworthy brokers it should always be stored securely on an encrypted device or cold storage.

In most states of the US, cryptocurrency trading is legal. However, certain restrictions do exist: for instance, the Securities and Exchange Commission (SEC) has stated that certain cryptocurrencies should be treated as securities and must register with them; furthermore, Commodity Futures Trading Commission (CFTC) regulates derivative contracts that reference commodity market prices; while Financial Crimes Enforcement Network (FinCEN) mandates all cryptocurrency trade be done via an exchange registered with them.

Crypto trading can also be plagued with fraudulent schemes and scams, such as investment schemes, price manipulation, or unregistered exchanges that may lead to significant losses that threaten to wipe out your portfolio. To minimise this risk of fraud it is advisable to only deal with reputable brokers and always verify your identity prior to sending any funds out.

Before investing, it is a smart idea to thoroughly research all token projects. Be wary of projects requiring large sums of money from you as these may be scams. Also be wary of emails coming from unfamiliar or dubious sources; and never publicise any successful trades on social media or at parties.