It seems like barely a month goes by without news of another SEC ruling against a cryptocurrency or cryptocurrency exchange. The latest part of the regulatory drama is potential SEC action against Crypto.com and Crypto.com’s decision to file a lawsuit against the SEC.
To be clear, regulation will not kill crypto. However, it could seriously clip its wings, particularly in the United States. Indeed, this is already impacting US crypto investors in terms of where you can buy crypto and what coins and tokens you can access. If you’re concerned about the impact regulatory measures could have on your investments, you’ve come to the right place.
What U.S. Investors Need to Know About Regulation
I’m not going to get bogged down in all the different cases, legal arguments, or even broader regulatory measures at the government level. As a crypto investor – or potential crypto investor – you probably have a burning question: What do the regulatory changes mean for the cryptocurrencies I own?
The answer is that increased regulation will almost certainly change crypto investing, but it won’t happen overnight. Some of the ways this can impact you as an investor are:
- Change in market sentiment, which directly impacts prices
- Restrict how you can buy, sell and store your cryptocurrency
- Limit services and features of crypto platforms
- Making it harder to trade specific cryptocurrencies
Pew research shows that about 17% of Americans have owned cryptocurrencies at some point. Among them, 69% still are. The SEC and other authorities may want to bring the sprawling crypto industry under control. But no one wants to be responsible for about 40 million Americans losing their investments.
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To start
Regulation Won’t Kill Crypto, But Keep It on Your Radar
Unfortunately, crypto investors cannot ignore the regulatory and legal environment. If the SEC can convince the courts that many cryptocurrencies are actually unregistered securities, it could impact how you buy and sell your assets.
The reason? Securities are a type of investment. Investments are regulated by the SEC and there are controls on who can sell them, what information they publish, and much more. SoFi® Invest has already completely discontinued its crypto products, while eToro recently reduced the number of cryptos offered to three.
It’s not all bad. The securities benefit from investor protections that do not exist in the crypto sector. If your brokerage fails, your investments are covered by what is called SIPC insurance. There are also rules designed to stop things like market manipulation and fraud. If cryptos are designated as securities, this will almost certainly lead to short-term pricing issues. But it could also mean more protections in the long term.
Pay attention to how the SEC cases against Coinbase and other major platforms play out. Be especially careful if you hold cryptocurrencies that the SEC has designated as unregistered securities in its fees. These include Solana (SOL), Cardano (ADA) or Polygon (MATIC). If the courts agree with the SEC, their prices could fall and crypto platforms could restrict trading as well.
Understanding the new tax requirements
I said I wouldn’t get bogged down in the details, but there is a definite change to be aware of. Starting in 2025, the IRS implemented new reporting rules for crypto exchanges and brokers that allow you to store your cryptocurrencies with them – also called custodial platforms.
As a consumer, your tax obligations will not change: you will still need to report your crypto transactions. But starting next year, crypto platforms will have to file a 1099-DA form, just like banks and brokerage firms do. This will change how you report your crypto movements.
How to mitigate the risk of regulatory change
Regulation is just one of many risks associated with purchasing and owning cryptocurrencies. Cryptocurrency is an extremely volatile investment and there is much we don’t know about how the sector will develop. As such, make sure crypto is only a small part of your broader portfolio. It’s one thing to take a risk with 5% of your investments, and another to risk 95%.
If you’re concerned about regulations, here are some ways to minimize your risks:
- Invest in crypto-EFTs: The SEC has approved several Bitcoin and Ethereum spot ETFs. This makes it easy to add crypto to your portfolio from your current brokerage account.
- Stick to BTC: Buying Bitcoin carries less risk than other cryptos. Not only is Bitcoin the largest cryptocurrency, but its decentralized nature has also kept it out of the SEC’s crosshairs. Ethereum has also avoided being labeled as a security, but the case is not as clear cut.
- Avoid any crypto staking or interest generating programs: The SEC has researched several crypto platforms that allow investors to earn interest on their crypto. As tempting as it may be to put your assets to work for you, wait until the legal aspects are clearer.
Conclusion
In the absence of clear action at the government level, the SEC will likely continue to pursue individual lawsuits against crypto platforms in 2025. This is a frustrating scenario for investors who want a clear set of rules. For now, all we can do is monitor court cases and minimize our crypto risks.
