Cryptocurrencies (or crypto) are digital assets exchanged and recorded on public distributed ledgers (known as blockchains) that do not require central intermediaries (e.g., commercial banks, central banks) for clearing and settlement. Transactions are public and users are pseudonymous, so, while transactions are visible to all, users, whose pseudonyms bear no connection to their true identities, enjoy a level of secrecy. Initially introduced as payments tools, cryptocurrencies are mostly used as a form of financial investment. This In Focus introduces crypto market structure, regulatory frameworks, and policy issues. For more information, see CRS Report R47425, Cryptocurrency: Selected Policy Issues.
Once relatively obscure, crypto has gone global. Crypto has experienced continual, rapid growth and significant price fluctuations. Between 2021 and 2022, after reaching what was then an all-time high of around $3 trillion, the market lost two-thirds of its value and fell to $800 billion. Since then, the market increased steeply again and is valued at $2.8 trillion as of April 1, 2025.
Crypto attempts to replace the trust-based traditional financial system with one that does not require trust. In lieu of traditional financial regulatory staples such as government chartering, supervision, and deposit insurance, the cryptocurrency system leverages cryptography and a series of separate but concurrent incentives for different system participants, such as mining and block rewards.
In recent years, large financial intermediaries—the very type of institutions crypto developers sought to obviate—have displaced the decentralized, trustless ideal. For example, crypto was originally accessible via less-than-user-friendly blockchains, but more user-friendly and familiar systems have been created, allowing individuals and firms to "custody" their crypto in accounts or "wallets" at institutions. An entire ecosystem has developed that supports cryptocurrencies, including the custody or hosting services known as wallets, as well as exchanges, payment platforms, decentralized finance platforms, and more.
Transacting with Crypto
Users may interact with crypto via on-chain transactions, which are processed over a blockchain, a network of nodes that maintain the system. Users send and receive cryptocurrency on-chain using unhosted wallets that store the keys that secure ownership of and permit transaction of crypto. Assets on a blockchain are protected by asymmetric key cryptography, which encrypts and protects data.
Off-chain transactions occur outside of blockchains. Instead, they are generally facilitated, processed, and recorded by online platforms, such as crypto exchanges, which host users' custodial or hosted wallets. Exchanges allow users to exchange fiat currency into crypto and vice versa. These platforms allow users to trade digital assets, make markets for various assets, and offer other services.
Types of Cryptocurrencies
The two most widely used cryptocurrencies are Bitcoin and Ether, which, as of January 2025, represent more than 65% of the crypto market capitalization. Bitcoin was the first cryptocurrency to gain widespread popularity. With Bitcoin, decentralized consensus mechanisms encourage some network participants (miners) to secure the system for financial gain. Bitcoin relies on a proof of work (PoW) consensus mechanism that rewards miners with greater computational resources and cheaper energy sources.
Ether is the cryptocurrency native to the Ethereum blockchain. Unlike Bitcoin, Ether uses proof of stake (PoS), a less energy-intensive consensus mechanism than PoW. In PoS, computational effort of PoW is replaced with collateral: Validators lock or "stake" at least 32 Ether to enter a pool to be given a chance to validate the next block. The network may seize collateral for malicious activity or other offenses. Ethereum also enables smart contracts, which are applications that self-execute when participants meet some predetermined set of criteria. Because of the enhanced programmability, Ethereum is widely used for decentralized finance (or DeFi) projects that aim to mimic traditional finance but without intermediaries.
Cryptocurrencies such as Bitcoin and Ether fluctuate in value based on market supply and demand. By contrast, stablecoins are "designed to maintain a stable value relative to a national currency or other … assets." For example, the Tether and USDC stablecoins are set equal in value to $1. As of April 2025, the stablecoin market is valued at greater than $237 billion. As with other cryptocurrencies, stablecoins have not been widely adopted for payments and are primarily used when trading crypto. Stablecoins attempt to match their value to fiat currencies in different ways but have been known to lose their stable values. For more, see CRS In Focus IF12450, Stablecoin Policy Issues for the 118th Congress, by Paul Tierno.
The premise of central bank digital currencies (CBDCs) is that issuing and managing a digital currency may realize at least some of the anticipated benefits of cryptocurrencies but with greater efficiency and fewer risks. For example, CBDCs could be used for payments, much the way crypto was intended. However, CBDCs would be legal tender and exist as units of the relevant national currency (e.g., U.S. dollars) themselves instead of having values linked to dollars. Congress and the President have taken actions to prohibit a U.S. CBDC, but other countries have introduced or are in the process of introducing their own. For more, see CRS In Focus IF11471, Central Bank Digital Currencies.
Crypto Regulation
There is no comprehensive federal regulatory framework for crypto, and regulators have issued few rules specific to crypto. Depending on circumstances, crypto may be subject to various existing regulatory frameworks depending in part on regulatory interpretation, the specific crypto product, how it is used, and what it is used for.
Applicable SEC Framework
Previously, the SEC took the position that many cryptocurrencies were securities and they and the exchanges on which they traded were subject to SEC regulation, absent an exemption. In January 2025, the SEC established a crypto task force with the intention of establishing what it called, a "sensible regulatory path" and providing clarity regarding which entities must register with the agency. In announcing the group, the agency alluded to criticism by some in the industry that the agency's previous approach amounted to "regulation by enforcement," which did not provide market participants with sufficient legal clarity. Since January, the SEC has announced the dismissal of a civil enforcement action against Coinbase, a large U.S. exchange, and ended its appeal of an earlier case against Ripple, a cryptocurrency issuer.
Applicable CFTC Framework
The Commodity Futures Trading Commission (CFTC) administers the Commodity Exchange Act, which defines commodities as various agricultural products and natural resources—such as gold, oil, wheat, and cotton—as well as services and rights in which futures may be dealt. In 2015 the agency brought an enforcement action against a Bitcoin options and futures platform, concluding that Bitcoin and other virtual currencies are "commodities." Various federal court decisions have since supported the CFTC's position that the act's definition of the term commodity encompasses virtual currency. Entities offering trading of crypto futures and options must register with the CFTC. The CFTC's authority in spot (cash) markets, however, is limited to enforcing prohibitions of fraud and manipulation. Since January 2025, the CFTC has announced a series of public roundtables on innovation and market structure, including digital assets, and withdrew two advisories on risks related to policies related to digital assets.
Applicable Banking Framework
Bank involvement with crypto can fall into three categories. First, banks can provide traditional banking services, such as lending and deposit taking, to crypto firms, including taking deposits that serve as stablecoin reserves. Second, banks can provide certain crypto services, such as custody of cryptocurrency, certain payment technologies, and tokenization. Third, crypto firms can seek to acquire banks or bank charters. Bank involvement in crypto activities faces a two-prong federal regulatory test. First, an activity must be permissible under law—Congress has limited banks' activities related or incidental to the business of banking. Second, an activity must be conducted in a safe and sound manner. New agency leadership has rescinded previous guidance that made it difficult for banks to get crypto-related activities approved.
Crypto firms may seek federal bank charters from the Office of the Comptroller of the Currency to provide limited crypto services. Various states, including New York and Wyoming, have established frameworks in which crypto firms may obtain special state banking charters. For more information, see CRS Report R48430, Banking and Cryptocurrency: Policy Issues.
Applicable Money Services Business Framework
Cryptocurrency exchanges generally must register as money services businesses (MSBs). The regulatory framework for MSBs is largely a state-based licensing regime and applies to many nonbank institutions, including crypto exchanges and crypto automated teller machines. At the federal level, these crypto firms are considered MSBs and must register with the Financial Crimes Enforcement Network and comply with the Bank Secrecy Act, which requires them to implement anti-money laundering (AML) and know-your-customer (KYC) programs. For more, see CRS Report R46486, Telegraphs, Steamships, and Virtual Currency: An Analysis of Money Transmitter Regulation.
Congress is divided on whether policy should foster, ignore, or quarantine the crypto industry, raising some policy issues. Policymakers generally debate how to cultivate innovation while minimizing crypto's potential harms.
Future of regulation. The absence of a comprehensive statutory framework for crypto means that changes in Administration can lead to significant changes in how regulation is applied. The regulatory policy debate has focused on whether a regulatory regime that is tailored for crypto is necessary. Other key policy issues can be summed up in three unanswered questions: Are current regulatory authorities sufficient, or is congressional action required? If new regulatory authority is required, who should be the primary regulator? Is it better to create a new, overarching structure, or is a refinement of the existing one sufficient?
In February 2025, leaders of various congressional committees reportedly formed a bicameral working group composed of members of the House Financial Services; House Agriculture; Senate Banking, Housing, and Urban Affairs; and Senate Agriculture, Nutrition, and Forestry Committees to advance digital assets policy. Since then, stablecoin-related legislation has seen action in the Senate (S. 919) and introduction in the House (H.R. 2392). Committee leadership has expressed support for a broader crypto market structure bill.
Privacy vs. illicit activity. The same characteristics that address a legitimate desire for privacy also provides secrecy that makes it useful for engaging in illicit activity. Balancing the potential privacy provided by crypto's pseudonymity with the requirement that financial firms comply with AML/KYC programs is a key policy issue.
Consumer and investor protection. Some argue that numerous scams and frauds—embodied by the 2022 collapse of crypto firm FTX—highlight a lack of investor and consumer protections in the industry.
Document ID: IF12405