Is Crypto Legal in My State?
Here are the cryptocurrency laws for each and every state in the U.S.
If you’ve paid any attention to the news regarding cryptocurrency, you’ve probably run across headlines like “Cryptocurrency Is Illegal in China” or “Bitcoin Is Banned in Russia.” If crypto can be banned in these countries, you’re probably curious whether or not it’s banned in the U.S. or in your particular state. You may be wondering, “Is crypto legal in my state?”
There are a lot of legal risks to investing in crypto, but In this article, we’ll explore state-by-state legality in detail.
Can a U.S. State Ban Cryptocurrency?
Before we go over the crypto regulations that exist, we should first clear up some confusion about how cryptocurrency works and whether a state can make it illegal in the first place.
Cryptocurrency is a digital asset that exists on a computer network. And cryptocurrency addresses don’t contain identifying information about users. There are numerous crypto pitfalls you’ll need to avoid when investing, but understand that by its very nature, there is no way for a government to enforce laws banning the possession of cryptocurrency.
With a centralized payment system like PayPal, the government could make it illegal for the company to run the server that keeps track of everyone’s balances. But even in this case, it’s very unlikely that the government would go after individual users.
With cryptocurrency, there are thousands of servers keeping track of everyone’s balances. Because these servers are spread throughout the world, the government can’t shut down the network itself. Going after individual users would be even more difficult in this case because, much like crypto addresses, crypto servers don’t keep identifying information about users.
The bottom line is that a U.S. state is unlikely to attempt to ban the possession of cryptocurrency. But it may regulate the sale of cryptocurrency for cash. In other words, it may regulate centralized exchanges, and that’s exactly what the U.S. government and many state governments do. If you’re interested in learning more about these exchanges, read our review of Coinbase, a great exchange for beginners, or our analysis of Binance.us, which is more suited for experienced investors.
With that caveat out of the way, let’s explore the crypto laws and regulations that exist throughout the U.S. to see how your state stacks up.
Pro Tip: Thinking about purchasing bitcoin or other crypto? Before you do, check out our guide to buying crypto safely in the U.S.
U.S. Crypto Laws and Regulations
There are so many U.S. laws and regulations regarding crypto that we literally wrote the guide on it, but here are the ones that apply in every U.S. state:
U.S. Crypto Laws
In 2021, the U.S. Congress passed a law that for the first time refers to cryptocurrency. It is called the Infrastructure Investment and Jobs Act.
Most of the law has nothing to do with cryptocurrencies. But there is one section in it that requires centralized crypto exchanges to issue a Form 1099-B to each user and to the IRS.
In other words, crypto exchanges in the U.S. are required to keep track of their users’ profits and losses and to report these to the IRS. This is just to allow crypto holders to accurately report their income.
Other than this recent law, Congress has never passed a bill specifically regulating cryptocurrencies, although some U.S. agencies have interpreted old laws as affecting them (more on that in the next section).
U.S. Crypto Regulations
A few regulatory agencies claim to be able to regulate cryptocurrency exchanges or developers based on laws that were passed before cryptocurrencies were invented.
The Financial Crimes Enforcement Network (FinCEN) claims that cryptocurrencies are “virtual currencies”; therefore, centralized crypto exchanges must comply with the Bank Secrecy Act. This means exchanges need to register with FinCEN as money services businesses (MSBs) and verify the identities of all of their users.
FYI: Keep in mind that if you pay cash for crypto on an exchange, you’ll be asked to provide ID to prove who you are.
The U.S. Security and Exchange Commission (SEC) claims that some cryptocurrencies fall under the definition of “securities” in the Securities Exchange Act. This means that crypto developers in the U.S. need to be careful not to promise investment profits to users or imply that they are offering to do work for investors.
If a developer does promise profits to investors, its cryptocurrency may be banned by U.S. exchanges for fear that they will be fined by the SEC. This means that these cryptocurrencies may be unavailable to you on U.S. exchanges.
The IRS claims that cryptocurrencies are considered property, like houses and cars. This means that crypto users have to pay taxes on crypto if they receive them as gifts or if they buy them for a lower price and sell them at a higher one.
In your state, these may be the only regulations that apply, or your state may have more strict regulations than these. So let’s discuss the additional crypto laws that exist in each state.
Cryptocurrency Laws and Regulations by State
In Alabama, legislation explicitly states that exchanges dealing in “virtual currencies” must register as MSBs with the state government to do business within the state. See Ala. Code § 8-7A-2.
In Alaska, crypto exchanges need to register with the state before selling to residents. There is no state law regarding cryptocurrencies. But the Alaska Division of Banking and Securities claims that crypto exchanges must have a license. See Money Services Businesses.
Arizona has not clarified whether crypto exchanges need to register as MSBs.
Arkansas law does not specifically mention cryptocurrency, and the Arkansas Security Department (ASD) has not issued a statement clarifying whether an exchange needs a license.
The ASD has stated that Mythical Games, a blockchain gaming company that operates in the state, does not need a money transmitter license to sell blockchain-based collectible trading cards. See 20-NA-005 (6-22-2020) “Mythical Games, Inc.”
The California Department of Financial Protection and Innovation (DFPI) is the regulatory body that handles money transmitter licenses for the state. It does not require exchanges to get a license. See DBO Commissioner Owen Clarifies Coinbase Exchange’s Regulatory Status in California and Virtual Currency -10/04/19 -1.
But the DFPI may require licenses in the future.
According to the Colorado Division of Banking, centralized exchanges need a license if they sell crypto for cash, transfer cash from one customer to another, or transfer crypto from one customer to another. If they do not deal in fiat at all and do not handle transfers between users, they do not need a license.
Connecticut law specifically defines “virtual currency” and seems to imply that crypto exchanges need a license. See Conn. Gen. Stat. § 36a-596(18).
The Colorado Department of Banking has clarified that peer-to-peer crypto trading services do not require a license, but exchanges that take custody of the user’s funds do. See Virtual Currency Money Transmission FAQs.
Delaware has not clarified whether centralized crypto exchanges need money transmitter licenses.
D.C. Code § 26-1023 defines the Washington, D.C., money transmitter law.
In 2020, a defendant who ran a dark web bitcoin mixing service claimed that this law did not apply to him because “bitcoin is not money.” In United States v. Harmon, a district court rejected this argument.
Florida’s money transmitter law is Fla. Stat. §560.103(23). In State v. Espinoza, a Florida appellate court ruled that a man who sold bitcoin for physical cash, using a local coffee shop as a meeting place for deals, violated this law by operating an unregistered MSB.
The man was caught after having posted an ad on localbitcoins.com, which was answered by an undercover agent posing as a customer.
We found no other information regarding Florida cryptocurrency laws.
The Georgia Department of Banking and Finance states that “some providers of virtual currency services must be licensed with the Department to provide services to Georgia consumers.” See Money Transmission and the Sale of Payment Instruments.
It has issued a cease and desist letter to bitcoin trading platform CampBX, claiming that CampBX is selling “payment instruments” without a license.
The department has not explained whether there are any cryptos that don’t qualify as payment instruments.
Hawaii’s money transmitter law is stated in the Money Transmitters Act, Chapter 489D.
Coinbase has criticized this law, claiming that it requires exchanges to hold redundant reserves. According to Coinbase, this makes it virtually impossible for a crypto exchange to do business in the state. See “How Bad Policy Harms Coinbase Customers in Hawaii.”
The state has responded to this criticism by creating the Digital Currency Innovation Lab, which temporarily exempts crypto exchanges from these requirements until June 30, 2022. See DCIL FAQS UPDATED 08.26.21.
After June 30, 2022, exchanges that serve Hawaii will need to comply with all provisions of the Money Transmitters Act unless the initiative is extended or the law is amended.
The Idaho Department of Finance states that “virtual currency exchanges” must get a license if they sell crypto for cash or buy crypto with cash. See Idaho Money Transmitters Section.
The Illinois Department of Financial and Professional Regulation has issued extensive guidance on when selling cryptocurrency requires a money transmitter license. See Digital Currency Regulatory Guidance.
In Illinois, selling cryptocurrency for cash is not considered money transmission, nor is swapping one cryptocurrency for another. However, if an exchange holds cash on behalf of users until a deal is made with a third party, this is considered money transmission.
Given this definition, most exchanges will need a money transmitter license in Illinois, although some individual sellers will not.
The Indiana Department of Financial Institutions (IN-DFI) has stated that a virtual currency exchange does not need a license as long as it does not allow users to transfer cash to other users. See IN-DFI Money Transmitter License New Application Checklist (Company).
The Iowa Department of Banking has not clarified whether crypto exchanges need a license in the state.
The Kansas Office of the State Bank Commissioner has provided detailed guidance as to when a crypto sale is considered money transmission.
According to the guidance, selling crypto for cash is not money transmission, nor is swapping one crypto for another. But if an exchange holds funds for a customer until the terms of a deal go through, this is money transmission and requires a license. See Regulatory Treatment of Virtual Currencies Under the Kansas Money Transmitter Act.
Most crypto exchanges will need a license under this interpretation.
The State of Kentucky has not clarified whether a license is needed to sell crypto in the state.
In Louisiana, crypto exchanges are governed by the Louisiana Virtual Currency Businesses Act. Anyone who exchanges, transfers, or stores cryptocurrency on behalf of another needs a license.
There is an exemption for individuals and small exchanges that do less than $35,000 of business in a year.
In Maine, 32 MRSA § 6102(10) explicitly defines virtual currency exchanges as money transmitter services.
The Maryland Office of the Commissioner of Financial Regulation (OCFR) has stated that virtual currency transmission is regulated by it. See Regulated Financial Services Industries and Activities – Financial Regulation.
The Commissioner of Financial Regulation has issued a memo that states: “An administrator or exchanger that accepts and transmits a convertible virtual currency or buys or sells convertible virtual currency for any reason is a money transmitter under federal regulations1 and therefore should be registered as a money services business (MSB).”
But the memo also says “CURRENTLY, MARYLAND DOES NOT REGULATE VIRTUAL CURRENCIES.” See VIRTUAL CURRENCIES: RISKS FOR BUYING, SELLING, TRANSACTING, AND INVESTING.
Whether or not an exchange needs a license seems to hinge on whether the assets sold are “convertible.” But the OCFR has not clarified whether sellers of bitcoin, ethereum, etc., fall under this definition of selling convertible virtual currencies.
Massachusetts requires a money transmitter license only for businesses that facilitate sending money to a foreign country. See Apply for a Money Transmitter License.
Paybis, Ltd., a peer-to-peer crypto trading and cloud wallet service, has asked for clarification on whether its service is required to get a money transmitter license because users might send crypto to a foreign country.
The Division of Banks has responded that the company does not need a money transmitter license for this type of business. See Opinion 19-008.
An exchange may still need to apply for a license if it allows users to make off-chain transactions to users in foreign countries.
The Michigan Department of Insurance and Financial Services has issued virtual currency guidance for consumers. It states, “An administrator or exchanger is a money transmitter under federal regulations and should be registered as a money services business (MSB).” See Virtual Currency: What Consumers Need to Know.
It has not defined “administrator or exchanger.” So it’s unclear at this point whether an individual seller of crypto needs a license.
Minnesota has not clarified whether sellers of crypto need a license.
Mississippi has not clarified whether selling crypto requires a license.
Missouri law states that the “sale of checks” requires a license. See Mo. Rev. Stat. § 361.705. The state has not clarified whether crypto sales are considered sales of checks.
Montana does not require money transmitters to get a license. Crypto exchanges need to be registered as a business within the state. See Money Service Businesses.
In Nebraska, cryptocurrency exchanges can become state-chartered “digital asset depository institutions” exempt from money transmitter laws. See Neb. Rev. Stat. § 8-2724(1)(d)(i). However, these institutions must comply with extensive regulations similar to banks. See The Nebraska Financial Innovation Act for a complete explanation of cryptocurrency law in Nebraska.
The Nevada Financial Institutions Division (NFID) states that a crypto exchange may or may not need a money transmitter license in Nevada. This decision is made on a case-by-case basis.
The department asks that any business that “facilitates the transmission of or holds fiat or digital currency by way of brick-and-mortar, kiosk, mobile, internet or any other means, should contact the NFID to request a licensure determination.” See FID Statement on Cryptocurrency.
If a business does need a license, but can prove that it provides an “innovative financial product or service,” it can still apply for an exemption under the Nevada Regulatory Sandbox Program.
In New Hampshire, HB 436 exempts “persons using virtual currency” from registering as money transmitters. It was signed into law by Governor Sununu on June 7, 2017.
If an exchange only accepts crypto deposits and does not sell stablecoins, it probably does not need to register with the state as a money transmitter. However, the New Hampshire Banking Department has warned that “money transmitters who transmit money in fiat and cryptocurrency are still required to be licensed with the New Hampshire Banking Department.” See this document.
Exchanges that deal entirely in crypto must comply with the Consumer Protection Act. This means that they must refrain from deceptive business practices just like any other business.
New Jersey has not clarified whether sellers of crypto need a license.
The New Mexico Regulation and Licensing Department states that “virtual currency exchanging and trading services” must register as money transmitters with the state. See Money Services Businesses.
New York is the home of the infamous BitLicense, required under 23 NYCRR § 200. If you store, hold, or maintain custody of crypto for others in New York, you need a BitLicense. If you run an exchange, you need a BitLicense. If you issue a cryptocurrency, you need a BitLicense.
Businesses that deal in cash as well as crypto will also need a New York money transmitter license. See BitLicense FAQs.
Critics of the BitLicense have long claimed that it is too expensive to obtain and that crypto companies are staying out of New York because of this. “Kill the BitLicense,” written by two executives of a New York-based bitcoin rewards app, does a good job of summing up the arguments of these critics.
The North Carolina Money Transmitters Act requires anyone “maintaining control of virtual currency on behalf of others” to acquire a money transmitters license.
However, the commissioner of banks has clarified that “an exchanger that sells its own stock of virtual currency is generally not considered a virtual currency transmitter under the NC MTA.” See Money Transmitter Frequently Asked Questions.
Most exchanges will need a license in North Carolina, but individual sellers may not need one as long as they are not brokering deals with a third party or holding customers’ funds.
Ohio has not clarified whether a cryptocurrency exchange is considered a money transmitter.
Oklahoma has not clarified whether a crypto exchange is considered a money transmitter or whether sellers of cryptocurrency need to get a license.
Oregon has not clarified whether cryptocurrency is considered money in the state or whether crypto sellers need a license.
Money transmitter services in Pennsylvania are governed by the Money Transmitter Act. The Pennsylvania Department of Banking and Securities (DOBS) has clarified that this act does not apply to cryptocurrency exchanges, since cryptocurrency is not money.
Even if an exchange sells crypto for cash or holds cash on behalf of a user, it is still not a money transmitter, according to the DOBS, since it does not allow a user to send cash to another person directly. See Money Transmitter Act Guidance for Virtual Currency Businesses.
Title 19 of the Rhode Island General Laws defines “virtual currency business activity” as a form of currency transmission and requires all currency transmitters to post a surety bond.
Section 19-14.3-1 – Exemption from licensing provides several exemptions, including cases that may apply to individuals who want to sell to family or friends.
The South Carolina Attorney General has issued an opinion stating that cryptocurrency exchanges are not required to have a license because cryptocurrencies “lack the characteristics of mediums of exchange.”
However, if an exchange performs transactions that “also involve the transfer of fiat currency,” it may be required to register. See Request for Interpretative Opinion under South Carolina Anti-Money Laundering Act.
The South Dakota Division of Banking has stated that “virtual currencies, including cryptocurrencies like bitcoin, are ‘monetary value’” and that crypto exchanges must be licensed as money transmitters.” See VIRTUAL CURRENCY TRANSMISSION IN SOUTH DAKOTA.
The Tennessee Department of Financial Institutions (TDFI) has provided detailed guidance on which circumstances trigger a requirement for a license when selling cryptocurrency. According to the TDFI, selling your own cryptocurrency to others does not require a license. If you run an exchange that deals in crypto only, you do not need a license.
However, if you take custody of a user’s cash and serve as a third-party broker between buyer and seller, this will generally require a license. See Regulatory Treatment of Virtual Currencies under the Tennessee Money Transmitter Act.
The Texas Department of Banking (DoB) has issued detailed guidance for cryptocurrency exchange businesses. According to the DoB, cryptocurrency is not money, so operating a crypto exchange does not by itself constitute money transmission.
However, if an exchange offers stablecoins, it needs a license. It also needs a license if it acts as an escrow-like intermediary between buyers and sellers in a transaction that involves cash. See SUPERVISORY MEMORANDUM – 1037.
Utah Code § 7-25-102(9)(b) explicitly states, “‘Money transmission’ does not include a blockchain token.” So crypto exchanges that don’t accept cash may be exempt from licensing.
Brokering a crypto-for-cash deal between two other parties may still require a license. Utah regulators have not issued an opinion on this yet.
The Virginia Money Transmitter Law is § 6.2- 1900 (Money Order Sellers and Money Transmitters).
The Virginia Bureau of Financial Institutions has clarified that it “does not currently regulate virtual currencies,” but if a crypto exchange transaction “also involves the transfer of fiat currency,” it may be regulated under this law. See Notice to Virginia Residents Regarding Virtual Currency.
RCW 19.230.010(18) explicitly defines “virtual currency” as money.
However, it exempts “other uses of virtual distributed ledger systems to verify ownership or authenticity in a digital capacity when the virtual currency is not used as a medium of exchange.” This may exempt blockchain video game developers or other NFT-related businesses from needing a license, although the state has not clarified that this is the meaning of “other uses…to verify ownership.”
The Washington Department of Financial Institutions has clarified that all crypto ATMs, crypto exchanges, and hosted wallets are money transmitters, regardless of whether or not they accept cash. See Virtual Currency and Money Transmission Laws.
If you are running a crypto exchange business in Washington, you’ll likely need a license.
West Virginia has not clarified whether cryptocurrency is considered money that is subject to money transmitter laws. If a license is required to operate an exchange, the exchange can apply for exemption under West Virginia’s Fintech Regulatory Sandbox Program.
In Wisconsin, money transmission is governed by the Sellers of Checks law. The Department of Financial Institutions (DFI) has issued guidance stating that cryptocurrency exchange is not covered by this law.
However, it has also stated that the law may apply if cash is involved in crypto transactions, “depending on how the transaction is structured.” See WDFI-Sellers of Checks.
Wyoming law makes clear that “buying, selling, issuing, or taking custody of payment instruments or stored value in the form of virtual currency or receiving virtual currency for transmission to a location within or outside the United States by any means” is exempt from money transmission regulations.
In addition, “a person who develops, sells or facilitates the exchange of an open blockchain token” is also exempt.
In general, crypto exchanges in Wyoming don’t need a license from the state.
Final Thoughts on Crypto Laws by State
So these are the crypto laws and regulations in all 50 states. Thankfully, the purchase and possession of cryptocurrency is legal in every state, which, of course, means yours.
But if you sell crypto to someone who is unlicensed, this may require you to get a license from the U.S. government or from your state.
Since most crypto users sell only to their exchanges, these laws will not affect most of us. But if you are considering running a local exchange, they may apply to you. Be sure to consult an attorney if you have any questions about these and other laws.
Looking for more crypto content? Our Everything You Need to Know About Crypto explainer is a great place to start your journey. Or, if you’re looking for some more granular information on how exactly to get started investing in cryptocurrency, our article on determining if a crypto exchange is legitimate might be right for you.