Beware of Crypto Regulations: How To Keep Your Crypto Business Legal

By Editorial Staff

With cryptocurrency making headlines left and right, it is hard to sort through the onslaught of information as a consumer. Especially with governments across the globe stepping in to monitor the industry, their involvement introduces another wave of uncertainty. Fear not — NeoReach has you covered on knowing the basics of the current crypto regulations. 

It is important to remember that cryptocurrency — in its entirety — is still very much a new, developing field. Thus, what little regulation that currently exists still has a ways to go in terms of being thorough enough to cover all the potential ramifications.  


Current & Upcoming Crypto Regulations 

As of the date of this article’s publication, the only crypto regulations that exist in the United States is if the sale: 

  1. Qualifies as a sale of a security — financial mediums that hold monetary value — under state or Federal law OR 
  2. Is considered as money propagation under state law or action that enables person to become a money service business (MSB) Federal law

With the Biden Administration currently working on an executive action that will allow federal agencies to enact crypto regulations as a matter of national security, a myriad of responses have occurred.

On one hand, many fear that government involvement will suppress growth and innovation in the industry. However, many others have pointed out the need for federal intervention will address the challenges that have come with using crypto — money laundering, scams, and cyberattacks, etc. 

Because the volatility of the crypto market makes it difficult for individuals to interact with the currency, there exists a real potential for greater government involvement to foster a more secure atmosphere. 

Security and transparency are important in any crypto campaign. Learn more about advertising in the cryptocurrency market here

In addition to Biden’s Administration gearing up to make moves, the U.S. Securities and Exchange Commission (SEC), recently approved the ProShares Bitcoin Strategy ETF (BITO) — a Bitcoin exchange-traded fund — to offer various investors the chance to be exposed to the digital currency without actually buying any Bitcoins. 

The Internal Revenue Service (IRS) has also ruled that any digital or virtual currency transactions are subject to being taxed and reported on tax returns as property. 

However, a bipartisan group in the U.S. House of Representatives has recently introduced a bill that acts as an amendment to the IRS’s ruling. Termed the Vital Currency Tax Fairness Act, the ordinance would exempt individuals from taxes on virtual currency payments that are below $200. 

While these measures certainly can be interpreted as a positive image for the future of digital currency, the crypto regulation that arrives later on could very well be stringent — making the likes of Bitcoin and other cryptos lose value. 

The continuation of taxing cryptocurrency is still to be decided

Via Art Rachen

Thus, because there exists a wide spectrum of gray in regards to this specific topic, it is important that as you embark on this new adventure of crypto, you know what to do and what not to do so you don’t end up in jail. Or being fined. Or both. 

Understanding the pulse of crypto in the Creator Economy requires constant watch and deep analysis. Download our full 2021 Year in Review report here for a professional breakdown of the past 12 months online.

Caveats When Marketing Crypto

Whenever you are marketing crypto, all your typical marketing strategies — earned, paid, media — are typically safe. 

However, it is still incredibly important to remember not to advertise promises or guarantees that your business can not bring to fruition — it violates the Federal Trade Commission Act that protects consumers from marketing that is deceptive and/or fosters unfair acts or practices.

If you’re unsure how to market yourself or your brand in the crypto space, check out this blog for some top crypto marketing agencies. 

Additionally, when you are advertising crypto, you should be aware if your tokens count as a security — which it is quite likely it will. So, in order to make sure you are abiding by federal law

  1. You or one of your coworkers has to have a broker dealer license with the SEC and be a member of FINRA so that you can oversee the sale of crypto or act as a market maker and;
  2. The crypto can only be traded on a licensed securities exchange or an alternative trading system (ATS) approved by the SEC

When using cryptocurrency, it is important that you are dealing with registered securities 

Via @moneyphotos

Got it? Cool. 

Now, once you manage to avoid getting shot down and caught by one of the Federal securities laws, you now have to deal with each state’s individual laws — also known as blue sky laws — that deal with digital assets that probably constitute security. 

While state laws are in varying places on the spectrum, it is helpful to know that many of them define monetary transmission as one or a combination of the following three types of activities. 

  1. Money changing hands;
  2. Issuing and/or selling an item’s stored value and;
  3. Issuing an/or selling payment tools/devices

As a general rule of thumb, these state laws apply to any entity that is located within the specific state or outside of its boundaries — including those in places with foreign jurisdiction. 

Once you’re done researching the plentiful amount of rules and regulations for the U.S.’s beautiful 50 states, just remember that there exist exemptions from Federal law that do not also exempt you from blue sky laws. 

Fun, right?

Now, there have been instances where marketing professionals have tried to emphasize the utility or voucher-like aspects of their initial coin offerings (ICOs). Defined as a type of funding — crowdfunding oftentimes, but private ones exist too — people will try this tactic as a means of getting out of all that webbing with securities laws.

Don’t do it. 

By highlighting form over the substance of cryptocurrency, it still does not change the fact that your cryptocurrency is still a security. Selling unregistered securities is the equivalent of a felony in the eyes of the law, and let me tell you, orange definitely is not everyone’s color. 

Anyway, some better news in regards to state laws is that there have been efforts from various places in the country to advocate for a wider push for cryptocurrency usage. 

Arizona, for example, was the first state to adopt a different type of crypto regulation where they oversee a “sandbox” to foster the development of new industries like cryptocurrency. 

Granting relief for inventors who want to bring new products to market within the state, various companies and individuals can test their products for a maximum of two years and service as many as 10,000 customers before having to apply for formal licensure. 

Other states have followed suit and created similar programs. Once again, you will have to check each state individually. Go ahead, I will be here waiting. 

Got through all the federal and state laws? Great, one last thing — I promise. 

Remember that Vital Currency Tax Fairness Act? Yea, that has gone into effect yet. So, until that happens, be sure to keep detailed receipts of sales and purchases whenever you market crypto. That way, the IRS does not have to come and chase you down. 

According to IRS Notice 2014-21, be sure to note when doing your invoices that you have to pay taxes on

  1. Any profits on you may have received on the purchase of a good or service using crypto
  2. Any gains you made on the sale of crypto for cash
  3. The fair market value of any mined crypto, using the date of your receipt as reference 

Congratulations! You are now at the end of the article. Take a drink, you earned it. 


This article was written by Serena Ngin

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