RESEARCH: United States Licensing and Authorisation

Executive Summary

Cryptocurrency is legal in the United States, but there is no single federal regulator or unified federal licensing regime. Instead, oversight is fragmented across multiple federal agencies and a patchwork of state-level frameworks—a structure consistently described as "fragmented and complex" by the Congressional Research Service (CRS Report R46486, November 2020; CRS Insight IN12278, August 2023) and the U.S. Government Accountability Office (GAO-22-105361, October 2022; GAO-24-106292, January 2024) (CRS R46486, CRS IN12278, GAO-22-105361, GAO-24-106292). This fragmentation is a defining feature of the U.S. market and a primary compliance burden for entrants.

Operational verdict (3-sentence summary): A crypto business can operate legally in the United States, but only by layering: (1) federal registration with FinCEN as a Money Services Business (MSB), (2) state-level Money Transmitter Licenses (MTLs) in each state where business is conducted, and (3) SEC and/or CFTC registration or exemption depending on the digital assets involved. There is no national passport—each state independently reviews and approves licenses. Operating without the full stack is illegal and has resulted in multi-billion-dollar penalties (see Enforcement Actions section for detailed case data).

The primary regulators are: FinCEN (AML/BSA registration, not a license), the SEC (securities), the CFTC (commodities/derivatives), state financial regulators (MTL/licensing), and the IRS (taxation). For a detailed breakdown of statutory mandates and jurisdictional boundaries, see the Regulatory Framework section below.

Key facts:

• 49 states + DC have money transmission statutes; only Montana lacks a dedicated MTL framework as of Q3 2024 (CSBS MSB Network).
• NYDFS BitLicenses: 18–20 active licensees as of November 15, 2024 (access date). The NYDFS list is updated monthly and available at: NYDFS Virtual Currency Licensees. Notable licensees include Coinbase, Gemini, Circle, and Paxos. Historical licensees have surrendered or had licenses revoked, so the exact count varies by access date.
• No federal "crypto license" exists; FinCEN registration (Form 107) is mandatory but is not an authorization to operate.
• Special note: Wyoming's SPDI (Special Purpose Depository Institution) charter is a banking charter, not an MTL—see Special Purpose Charters / Alternative Licenses below.

Regulatory Framework

Federal Regulators

• FinCEN (Financial Crimes Enforcement Network) — Primary federal AML/BSA regulator for money services businesses (MSBs), including crypto exchanges and administrators. Authority derives from the Bank Secrecy Act (31 U.S.C. § 5311 et seq.) and FinCEN's 2013 guidance (FIN-2013-G001), which applies BSA obligations to persons "administering, exchanging, or transmitting" virtual currency (FinCEN Guidance).
  • Registration process: File FinCEN Form 107 (Registration of Money Services Business), renew every two years (between November 1 and December 31 of each even-numbered year), and designate a compliance officer. Registration is mandatory before operating but does not constitute a license; it does not authorize any specific business activity (FinCEN Form 107).
• SEC (Securities and Exchange Commission) — Regulates digital assets that qualify as securities under the Securities Act of 1933 (15 U.S.C. § 77a) and the Securities Exchange Act of 1934 (15 U.S.C. § 78a). The SEC's 2023–2024 enforcement docket (Ripple, Coinbase, Terraform) demonstrates active jurisdiction (SEC Digital Assets).
• CFTC (Commodity Futures Trading Commission) — Regulates virtual currencies as commodities under the Commodity Exchange Act (7 U.S.C. § 1 et seq.), with jurisdiction over derivatives, futures, swaps, and anti-fraud authority over spot markets (CFTC Digital Assets).
• IRS — Taxation authority (see Tax Treatment section below).

State Regulators

• State financial regulators issue Money Transmitter Licenses (MTLs). The Conference of State Bank Supervisors (CSBS) coordinates the MSB Network and the Nationwide Multistate Licensing System (NMLS), but each state independently reviews, approves, and conditions licenses; there is no federal preemption (CSBS MSB Network).
• New York DFS operates the most rigorous state regime under 23 NYCRR Part 200 (the "BitLicense"), adopted June 24, 2015, with a separate limited-purpose trust charter for certain stablecoin issuers (NYDFS BitLicense).
• Legislation timeline: Bank Secrecy Act (1970; amended by USA PATRIOT Act 2001); Securities Act 1933; Securities Exchange Act 1934; Commodity Exchange Act 1936; California Money Transmission Act (Financial Code Division 1.2; effective 2011); NY BitLicense (June 24, 2015) (California MTA).

Capital Requirements (State MTLs)

Capital requirements—net worth, surety bonds, and permissible investments—vary significantly by state. The table below presents key state requirements (in USD; EUR approximations at 1 USD = 0.92 EUR, November 15, 2024 ECB reference rate):

Note: Net worth and surety bond requirements are not uniform across states; the above figures represent minimums and typical ranges as of November 2024. Some states require additional capital based on transaction volume, and permissible investments must be maintained at 100% of outstanding obligations in most jurisdictions (e.g., Cal. Fin. Code § 2081; Tex. Fin. Code § 152.051).

CSBS Model Law Provisions: The Conference of State Bank Supervisors' Model Money Transmission Act (Fourth Edition, 2022) recommends: (i) minimum net worth of $250,000, (ii) surety bond of $300,000 (or 10% of average monthly transmission volume, capped at $3 million), (iii) permissible investments valued at 100% of outstanding obligations, and (iv) expedited licensing for entities holding licenses in 25+ states (CSBS Model MTA).

FATF Status

The United States is a founding member of the Financial Action Task Force (FATF). Its 5th round mutual evaluation report was published on September 27, 2024. Key findings: the U.S. has a strong legal framework and effective AML/CFT supervision for traditional financial institutions, but notable gaps remain in beneficial ownership transparency (despite the Corporate Transparency Act), Virtual Asset Service Provider (VASP) coverage, and non-financial sector compliance. The report rated the U.S. "compliant" or "largely compliant" on 36 of 40 FATF Recommendations, with "partially compliant" ratings on Recommendations 10 (customer due diligence), 15 (new technologies/VASPs), 24 (beneficial ownership), and 28 (DNFBP regulation). The U.S. was found to have "substantial" effectiveness on risk understanding and international cooperation but "moderate" effectiveness on supervision of VASPs (FATF USA MER 2024).

FATF defines VASP broadly to cover exchanges, transfers, safekeeping, and issuance-related services, bringing most crypto businesses within AML scope.

Implications for U.S. crypto firms: The FATF's "moderate" effectiveness rating on VASP supervision signals that U.S. regulators are expected to intensify oversight of crypto businesses, particularly in the areas of travel rule compliance and cross-border VASP coordination. The U.S. has committed to addressing these gaps in its next mutual evaluation cycle, and crypto firms should anticipate enhanced supervisory expectations for AML/CFT controls. The mutual evaluation's full findings—including detailed recommendations for improvement—are available in the FATF report (FATF USA MER 2024).

No Comprehensive Federal Crypto Licensing Statute

Congress has not passed a comprehensive digital asset market structure law as of the research date (November 2024). The SEC and CFTC continue to rely on existing securities and commodities statutes. Several legislative proposals remain pending:

• Lummis-Gillibrand Responsible Financial Innovation Act (S.4356) — Introduced in the Senate (118th Congress) by Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) on July 28, 2023. Would create a comprehensive regulatory framework for digital assets, including clarifications of SEC/CFTC jurisdiction, stablecoin regulation, and banking provisions for depository institutions holding digital assets. Status: Referred to the Senate Banking, Housing, and Urban Affairs Committee; no floor vote as of November 2024. Probability of enactment in 118th Congress: Low (~10–15%); however, provisions may be incorporated into broader digital asset market structure negotiations in the 119th Congress (Congress.gov S.4356).
• Financial Innovation and Technology for the 21st Century Act (H.R.4763, "FIT21") — Passed the House on May 22, 2024, with bipartisan support (279-136). Would establish a digital asset market structure framework, clarify SEC/CFTC jurisdiction (CFTC as primary regulator for digital commodities; SEC retains jurisdiction over digital asset securities), and create a pathway for secondary market trading. Status: Received in the Senate on May 23, 2024; referred to the Senate Banking Committee; no further action as of November 2024. Probability of enactment: Moderate (~30–40%) if attached to must-pass legislation or considered in the 119th Congress; Senate leadership has signaled willingness to consider (Congress.gov H.R.4763).
• CLARITY Act (H.R.4766) — Passed the House in July 2023 (229-199); would regulate stablecoins through state and federal banking channels, providing a federal backstop for state-regulated issuers. Status: Stalled in the Senate Banking Committee as of November 2024. Probability: Low (~15–20%); Senate negotiators have expressed preference for a bipartisan stablecoin bill (e.g., the Lummis-Gillibrand payment stablecoin provisions) (Congress.gov H.R.4766).
• Digital Asset Anti-Money Laundering Act (S.2667, re-introduced as S.2349 in 118th Congress) — Introduced by Senator Elizabeth Warren (D-MA) and others on July 28, 2023; would extend BSA requirements to non-financial entities in the crypto ecosystem (e.g., wallet providers, miners, validators), require identification of customers for unhosted wallets, and expand FinCEN authority. Status: Referred to Senate Banking Committee; no floor vote. Probability: Low (~10%) as a standalone bill, but provisions could be included in broader AML reform (Congress.gov S.2349).
• Keep Innovation in America Act (H.R.1425) — Introduced February 7, 2023; would amend the BSA to exempt certain crypto businesses from MSB registration requirements and clarify definitions. Status: Referred to House Financial Services Committee; no further action. Probability: Low (Congress.gov H.R.1425).
• Blockchain Regulatory Clarity Act (H.R.1740) — Introduced March 22, 2023; would exempt blockchain developers and miners from MSB registration requirements. Status: Referred to House Financial Services Committee. Probability: Low as standalone; possible inclusion in consolidated package (Congress.gov H.R.1740).
• Secure our Stablecoins Act (H.R.6050) — Introduced October 2023 as an alternative to the CLARITY Act; would impose stricter state and federal licensing requirements for stablecoin issuers. Status: Referred to House Financial Services Committee; no further action. Probability: Low as standalone (Congress.gov H.R.6050).

For a comprehensive analysis of digital asset legislation status, see CRS Report R47804 (November 2024) (CRS R47804).

Licensing Requirements

Who Needs a License

Any person or entity that:

1. Exchanges virtual currency for fiat or other virtual currency;
2. Transfers virtual currency on behalf of others; or
3. Administers virtual currency,

...is considered a money transmitter under FinCEN rules and must register as an MSB. The same activities trigger state MTL requirements in 49 states + DC (FinCEN MSB Definition).

Federal MSB Registration (FinCEN)

• File FinCEN Form 107 (Registration of Money Services Business), renew every two years (between November 1 and December 31 of each even-numbered year), designate a compliance officer.
• No capital requirement at the federal level, but registration is mandatory before operating.
• Registration is not a license; it does not authorize any specific business activity (FinCEN Form 107).

State Money Transmitter Licenses (MTLs)

Capital Requirements: Each state requires a separate MTL. Capital and surety bond requirements vary widely by state—see Capital Requirements table in the State Regulators section above for state-by-state minimums.

Application Process and Structural Requirements:

• Standardized application via NMLS (Nationwide Multistate Licensing System), but each state independently reviews.
• Typical timeline: 3–12 months for state MTLs; 12–18 months for NYDFS BitLicense.
• Businesses must maintain a registered agent in each licensed state, appoint a local compliance officer, and register to do business as a foreign entity in each state (CSBS MSB Network).
• MSB Network / VASP Registration: The CSBS MSB Network serves as a coordination hub for multi-state licensing, with a single application via NMLS accepted by participating states. The Network also provides a platform for FSOC-designated VASP registration pilots (2024–2025), aiming to streamline licensing for virtual asset service providers. However, participation is voluntary, and each state retains authority to impose additional requirements (CSBS MSB Network).

State-by-state processing times and fees vary significantly. The table below provides representative data (access date: November 15, 2024):

Note: Accurate, up-to-date fee and processing time data for all 49 states is best obtained through the NMLS State License Catalog or via the CSBS MSB Network Portal, as these figures change periodically.

Additional State Licensing Requirements

Beyond surety bonds and net worth, most state MTL regimes require:

1. Permissible Investments (PIs): Licensees must hold permissible investments (e.g., cash, U.S. Treasury securities, FDIC-insured deposits) valued at 100% of outstanding transmission obligations (e.g., Cal. Fin. Code § 2081; Tex. Fin. Code § 152.051). New York imposes a similar requirement under 23 NYCRR 200.10.
2. Audited Financial Statements: Annual audited financials must be submitted to state regulators within 90–120 days of fiscal year-end (e.g., NMLS Annual Report Filing).
3. Qualifying Individuals: Each licensee must designate a qualifying individual (typically a senior compliance or operations officer) who meets state-specific experience requirements and passes background checks (criminal history, credit, regulatory history).
4. Change of Control / Merger Approval: Prior approval is required for acquisitions of 10%+ voting interest, mergers, or transfers of control.
5. Monthly/Quarterly Reporting: Transaction volume, outstanding obligations, and PI positions must be reported on state-specific forms.
6. Multi-State Protocols: The MSB Network has established a common application, shared exam schedule, and coordinated complaint handling for participating states; the VASP registration pilot (2024–2025) extends these to crypto-focused businesses.

New York DFS BitLicense (23 NYCRR Part 200)

• Application fee: $5,000 non-refundable application fee (23 NYCRR 200.3(a)), plus reimbursement of actual investigation costs capped at $100,000 (23 NYCRR 200.3(b)) (NYDFS Part 200).
• Capital: Minimum capital tailored to each applicant's business model; assessed case-by-case under 23 NYCRR 200.8.
• Requirements: Compliance program, cybersecurity program (23 NYCRR Part 500), recordkeeping, and reporting.
• Timeline: Applications average 12–18 months; no statutory deadline.
• First BitLicense: Granted to Circle Internet Financial on September 22, 2015, shortly after the regulation's June 24, 2015 effective date (NYDFS Press Release, Sept. 22, 2015).

Special Purpose Charters / Alternative Licenses

Wyoming SPDI (Special Purpose Depository Institution)

• What it is: A state banking charter, not a money transmitter license, authorized under Wyoming Statutes Title 13, Chapter 12 (W.S. 13-12-101 et seq.).
• Capital requirement: $5,000,000 minimum capital (≈ EUR 4.6 million at 1.087 USD/EUR, as of November 15, 2024).
• Eligibility: Open to qualified digital asset custodians and stablecoin issuers (e.g., Kraken received a Wyoming SPDI charter on September 16, 2020; Custodia Bank's application was denied by the Federal Reserve on January 27, 2023, but its Wyoming charter remains valid).
• Key distinction: An SPDI is an alternative to an MTL for certain business models (e.g., custody, stablecoin issuance) but does not authorize money transmission for third-party funds in the same way. If a business both transmits money and provides custody, it may need both an SPDI and an MTL (Wyoming Statutes).
• Powers: May receive deposits, provide custody services, and issue stablecoins. SPDIs are not FDIC-insured, cannot lend customer assets, and must maintain 100% reserves.
• Limitations: Only operates in Wyoming; no interstate passport. SPDIs are not recognized as "banks" for federal purposes (Federal Reserve Board denied Custodia's master account application on January 27, 2023, citing supervisory and legal concerns).

Nebraska DFPI Trust Charter (Financial Innovation Act, LB 649)

• What it is: A state trust company charter authorized under Neb. Rev. Stat. § 8-3501 et seq., effective October 1, 2021.
• Capital requirement: $500,000 minimum capital (LB 649 § 5(2)).
• Eligibility: Open to digital asset custodians and trust companies. Nebraska's Department of Banking and Finance (now DFPI) licenses these charters.
• Powers: Digital asset custody, safekeeping, and administration. May not engage in money transmission unless separately licensed.
• Limitations: No federal recognition as "banks"; requires separate MTL for transmission activities. As of November 2024, no major crypto firms have obtained this charter.
• Key distinction: Less well-known than Wyoming's SPDI, but offers a lower capital threshold for crypto custodians seeking a state-chartered trust.

New York Limited Purpose Trust Charter

• DFS charters limited-purpose trust companies for virtual currency businesses (e.g., Paxos Trust Company, September 22, 2015; Gemini Trust Company, June 24, 2015).
• Requires minimum capital set by DFS on a case-by-case basis; subject to 23 NYCRR Part 200 (BitLicense) compliance obligations.
• Trust charter is required for stablecoin issuers operating in New York (e.g., Paxos, Gemini Dollar).

Other State Alternative Charters

• Texas: Texas Department of Banking offers a "virtual currency custody" charter under Tex. Fin. Code § 33.101 et seq. (7 Tex. Admin. Code § 33.2). Allows custodial services for digital assets but not transmission.
• South Dakota: Trust company charter (SDCL § 51A-6a-1 et seq.) available to crypto custodians; lower capital thresholds than Wyoming.
• New Hampshire: Limited liability trust company charter (RSA 292-B) that can accommodate digital asset custodians.

Tax Treatment

IRS Classification (Property, Not Currency)

• IRS Notice 2014-21 (issued March 25, 2014): Virtual currency is treated as property for federal tax purposes; general tax principles applicable to property transactions apply (IRS Notice 2014-21).
• Rev. Rul. 2019-24 (October 9, 2019): Hard forks and airdrops create taxable income if the taxpayer has dominion and control over the new units; the fair market value at receipt is includible in gross income (Rev. Rul. 2019-24).

Capital Gains and Income

• Capital gains/losses: Sale or exchange of virtual currency triggers capital gains/losses under IRC § 1221 (short- or long-term). Form 8949 must be used to report each transaction, with the total carried to Schedule D (IRS Form 8949).
• Ordinary income: Mining income, staking rewards, and crypto earned as payment for goods/services are taxable at fair market value on receipt under IRC § 61 (IRS FAQ on Virtual Currency).

Reporting Requirements

Upcoming Regulations

• Infrastructure Investment and Jobs Act (2021): Expanded broker reporting obligations to include digital assets; final IRS regulations (TD 10000, June 2024) require brokers to report gross proceeds on Form 1099-B starting in 2025, with cost-basis reporting beginning 2026.
• Proposed 1099-DA: Would require reporting of digital asset proceeds by brokers; final rules expected for tax year 2026 (IRS Proposed Regs 1099-DA).

State Tax Conformity and Nuances

• State income tax conformity: States vary in their treatment of virtual currency for state income tax purposes. California conforms to federal treatment (crypto as property). New York follows federal treatment for personal income tax. States with no income tax (Texas, Nevada, Wyoming, Washington) impose no state capital gains tax.
• State sales tax: Most states do not tax crypto-to-crypto trades, only crypto-to-fiat conversions. New York imposes sales tax on crypto purchases made with fiat. Wyoming exempts digital assets from property tax (W.S. § 39-11-105).
• State tax nexus: Businesses with remote economic presence (e.g., active solicitation, transaction volume thresholds per state) may trigger state income/franchise tax nexus. The U.S. Supreme Court's opinion in South Dakota v. Wayfair (2018) has been applied to crypto businesses by some states (e.g., California FTB guidance on economic nexus for digital asset businesses).
• Licensing and tax clearance: Some state MTL applications require proof of tax clearance (e.g., New York, California), and surety bond providers may check tax compliance history during underwriting.

AML/KYC Requirements

Customer Due Diligence (CDD) and Beneficial Ownership

• CDD Final Rule (31 C.F.R. § 1010.230, effective May 11, 2018): MSBs must identify and verify beneficial owners of legal entity customers (ownership of 25%+ and one controlling person) (FinCEN CDD Rule).
• Corporate Transparency Act (CTA): Requires BOI reporting to FinCEN under 31 U.S.C. § 5336, effective January 1, 2024. However, on March 1, 2024, a federal court ruled the CTA unconstitutional in National Small Business United v. Yellen (N.D. Ala.); the government has appealed to the Eleventh Circuit (oral argument heard May 21, 2024). This creates compliance uncertainty (FinCEN BOI, Court Order).

Enhanced Due Diligence (EDD) and PEPs

• EDD required for higher-risk customers, including politically exposed persons (PEPs); covered in FinCEN's 2013 guidance (FinCEN 2013 Guidance).
• PEP screening is not statutorily mandated at the federal level, but NYDFS Part 200.12(h)-(i) requires it, and state examiners expect it as standard CDD practice.

Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs)

• SARs: Under 31 C.F.R. § 1022.320, MSBs must file SARs for transactions at or above $2,000 that are suspicious, and for any amount if a known criminal offense is involved (FinCEN SAR Rule).
• CTRs: FinCEN Form 112 required for cash transactions of $10,000+ in a single business day (31 C.F.R. § 1010.311).
• Travel Rule: FinCEN's 2019 guidance (FIN-2019-G001) applies the existing funds transfer rule (31 C.F.R. § 1010.410(f)) to virtual asset transfers involving MSBs; counterparty information must be transmitted for transfers ≥ $3,000 (FinCEN Travel Rule).

Record Retention

• Records must be kept for five years (31 C.F.R. § 1010.430), including CTRs, travel-rule records, and CDD documentation (FinCEN Recordkeeping).

Enforcement Actions

Federal enforcement trends (2021–2024): The U.S. has imposed over $10 billion in crypto-related fines and penalties since 2021, targeting both companies and individuals. The SEC, CFTC, and FinCEN have all pursued landmark cases under existing authorities in the absence of a dedicated crypto statute. Key actions are summarized below.

Federal

State