Faruqi & Faruqi Analyzes the Latest Developments in Cryptocurrency Regulation

The field of cryptocurrency has made many important advances in recent years. Ever since Bitcoin’s rise to popularity in the mid-2010s, tech-savvy investors have looked for ways to take advantage of this trend. Cryptocurrencies are far less regulated than traditional forms of currency, but around the world, regulations are beginning to catch up with this segment of the fin-tech economy. Faruqi & Faruqi of New York, New York, explores the world of cryptocurrency regulation and points toward important trends in this area.

Cryptocurrencies are decentralized and do not conform to the standards of other types of currency. Thus, countries cannot control these currencies directly. Around the world, various laws have been put in place to ensure that these currencies are not used fraudulently or to commit crimes like money laundering.


The decentralized nature of cryptocurrency does not prevent it from being taxed. In the United States, cryptocurrency is taxed as property, not as income. This means that all tax regulations concerning property apply to cryptocurrency. The IRS recognizes losses and gains on the exchange of crypto and cash or in payment for another type of property.

Cryptocurrency is not a stock, but some of the same laws apply to it in the United States. Faruqi & Faruqi says that when crypto is sold for cash, owners must report capital gains and losses in a similar manner to stock sales.

Investment gains in cryptocurrency must be considered under the purview of the Medicare contributions tax. This means that taxpayers with adjusted gross incomes of $200,000 or more ($250,000 for married filing jointly) must pay 3.8 percent additional Medicare tax on these gains.

Money Laundering

Around the world, Bitcoin and other cryptocurrencies have been used for money laundering. This is the process of taking ill-gotten gains and converting them into legal funds. Bitcoin and other cryptocurrencies in particular lend themselves to money laundering pursuits because they are largely anonymous. There are, however, some newer forms of cryptocurrency like Dash, Zcash, and Monero which are completely anonymous. Legislation aimed at combating this problem includes the Bank Secrecy Act in the United States.


The Commodity Futures Trading Commission (CFTC) regulates Bitcoin and other cryptocurrencies as futures contracts, a type of commodity. This covers all interstate transactions involving cryptocurrency and regulates fraudulent use.

Legal Cases

Most legal cases filed in the United States have found that Bitcoin and other cryptocurrencies have the same legal standing as other forms of investment. Fraudulent investments are punished, and money-laundering schemes are regulated.

In one particular case involving the Bitcoin Savings and Trust, the organizers arranged a Ponzi scheme in which the investors were promised a 7 percent return. The defendant argued that Bitcoin was not money and therefore the laws did not apply to his case. The court found that Bitcoin could be exchanged for money and was therefore subject to rules against Ponzi schemes.

International Cryptocurrency Law

Not all countries allow cryptocurrencies. They are banned in China, Saudi Arabia, Taiwan, and other regions around the world. These countries decline to have a semi-regulated currency or commodity in their financial market. Countries other than the United States have put up regulations regarding money laundering and fraudulent investment schemes.

For example, the European Union is currently studying whether a common law could protect investors from bad actors and prevent the currency or security from being used in illegal situations. This could be a sign of things to come for the cryptocurrency market. As more regulations enter the arena, early adopters may wish to invest in a different type of currency.

Cryptocurrency Taking Hold

While cryptocurrency has captured the public imagination, it has been a vanishingly small part of the financial market as a whole. With novel advancements in the technology and new laws in place, crypto could grow to a significant portion of the economy. For this to happen, investors will need to be protected from unscrupulous companies, and investment gains must be properly taxed and regulated.

Going forward, the crypto landscape may go through many transformations as compared to its state in the early 2010s. Faruqi & Faruqi recommends that all early adopters should be careful to pay attention to all the shifts in cryptocurrency law.

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