What counts as a “crypto exchange” in the U.S.?
If a business exchanges, transfers, or administers crypto for others, it is generally a money services business (MSB) and must register with FinCEN and implement AML programs, including the Recordkeeping/“Travel Rule” for certain transfers. Peer-to-peer “exchangers” are also covered when they transmit value for others.
Key AML pieces you’ll see in onboarding and transfers:
- Customer Identification/KYC, ongoing monitoring, SAR filing where relevant.
- Travel Rule data exchange for qualifying transfers (31 CFR 1010.410(f)).
Federal regulators: who does what?
- FinCEN (Treasury): Registers MSBs and enforces AML/BSA; extends the Travel Rule to convertible virtual currency.
- OFAC (Treasury): Sanctions screening/geoblocking; exchanges must block prohibited transactions and persons.
- CFTC: Treats bitcoin and other virtual currencies as “commodities”; regulates crypto derivatives on registered DCMs (e.g., CME, Coinbase Derivatives). Exercises anti-fraud/manipulation authority over spot markets.
- SEC: Oversees crypto asset securities and related platforms/products; issues investor alerts on unregistered offerings and misstatements.
- IRS: Requires brokers/exchanges to issue Form 1099-DA; taxpayers must report gains/losses. Effective for transactions on/after Jan 1, 2025 per IRS guidance.
- Bank regulators (FDIC, Fed, OCC): Clarify when banks can engage in crypto activities; repeatedly warn that crypto balances are not FDIC-insured.
State rules: money-transmitter licenses, BitLicense & trust charters
Outside New York, most states apply money-transmitter laws to fiat↔crypto and certain transfer activity; many firms seek multistate coverage via CSBS programs. New York requires either a BitLicense or a limited purpose trust charter to conduct “virtual currency business activity,” with separate governance/custody expectations. Hawaii ended its sandbox in 2024 and no longer requires a Hawaii MTL specifically for crypto firms. Always verify your state.
Why trust charters matter: A NY limited purpose trust company can exercise fiduciary powers and act as a qualified custodian under certain contexts (e.g., Coinbase Custody Trust).
What services U.S. exchanges offer (and how they’re regulated)
- Brokerage & order-book trading (spot): Requires AML/KYC, Travel Rule, sanctions compliance; not FDIC/SIPC-insured.
- Stablecoin access: New York-licensed entities must meet strict NYDFS rules on backing, daily reserve sufficiency, and timely redemption when they issue or support DFS-approved USD-stablecoins.
- Derivatives (futures/options): Only on CFTC-regulated designated contract markets like CME and Coinbase Derivatives. Check product lists and specs.
- Custody: Some platforms offer on-platform custody; specialized custodians may operate under NY trust charters. SEC has discussed (and in 2025 withdrew) earlier custody proposal efforts; qualified-custodian status still depends on existing rules.
- Bank rails (ACH/wires): Banks can participate in crypto-related activities subject to prudential guidance; consumers must understand that crypto balances are not insured.
- Tax reporting: Expect Form 1099-DA; keep cost basis records and download annual statements.
Insurance & protections: what you do—and don’t—get
Crypto balances at exchanges are not covered by FDIC or SIPC. If you buy a crypto ETF at a brokerage, your securities can be covered by SIPC (up to $500k, including $250k cash) if the broker fails—but SIPC does not protect market losses.
U.S. regulators have pursued firms that misrepresent FDIC coverage. Treat any “FDIC-insured crypto” claim as a red flag.
Picking a U.S. exchange: a 10-point compliance & quality checklist
- Registration & licensing: Confirm FinCEN MSB registration and, where relevant, state money-transmitter licenses or NYDFS authorization (BitLicense or trust charter).
- Derivatives venue: If you trade futures/options, ensure they list on a CFTC-regulated DCM (e.g., CME, Coinbase Derivatives).
- Sanctions controls: Look for clear OFAC compliance (blocked jurisdictions, screening).
- Stablecoin policy: If you rely on stablecoins in NY, check DFS-approved issuers and daily-reserve/2-day redemption standards.
- Custody model: Separate, bankruptcy-remote custody, SOC2 reports, and independent attestations are plusses; trust charters can indicate stronger fiduciary oversight.
- Transparency: Public fee schedules and proofs of reserves/attestations.
- Market integrity: Surveillance, wash-trade controls, clear listing/delisting policies (NYDFS sets heightened expectations for licensees).
- Tax support: 1099-DA, downloadable trade history, realized P/L exports.
- Customer support & outages: Status pages, incident histories.
- Consumer education & scam awareness: Links to FTC/CFTC investor alerts.
Quick comparison (U.S. market context)
| Feature | Spot Trading | USD On/Off-Ramp | Derivatives Access | NY Authorization Path |
|---|---|---|---|---|
| Typical U.S. retail “exchange” | Yes | ACH/wires/cards via partner banks | No (unless affiliated CFTC DCM access) | State MTLs; NY BitLicense or trust charter |
| CFTC-regulated DCM (e.g., CME, Coinbase Derivatives) | No spot | N/A (clearing members/Futures Commission Merchants handle funds) | Yes (BTC/ETH futures/options; other listings vary) | N/A (federal derivatives regulation) |
Refer to DCM registries and product pages for specifics.
State snapshot (illustrative)
- New York: BitLicense or NY limited purpose trust charter; DFS stablecoin rules; updated coin-listing/delisting and Greenlist framework.
- Hawai‘i: DCIL sandbox ended June 30, 2024; the state announced no Hawai‘i-issued MTL requirement specifically for crypto firms going forward—still comply with applicable federal/state law.
- Texas: Updated supervisory memo (Jan 2025) outlines treatment of virtual currencies under its Money Services Modernization Act.
Always verify current state guidance before onboarding.
Taxes: reporting and record-keeping
From January 1, 2025, many brokers/exchanges must furnish Form 1099-DA to customers and the IRS for applicable digital asset transactions. Keep meticulous cost-basis and transfer records; download annual CSVs and reconcile across wallets/exchanges. This page explains who’s a “broker,” what’s reportable, and transition timing.
Safety basics for U.S. customers
- Use unique emails + app-based MFA; store seed phrases offline.
- Prefer exchanges with robust compliance, independent audits, and clear incident response.
- Learn to spot scams; the FTC reports heavy losses in 2024, especially via bank transfers and crypto.
Frequently asked questions
Are my exchange balances insured?
No. Crypto balances are not FDIC- or SIPC-insured. Securities (e.g., ETFs) at a SIPC-member broker can have SIPC coverage against broker failure, not market loss.
Can U.S. customers trade crypto futures?
Yes—on CFTC-regulated designated contract markets such as CME and Coinbase Derivatives, via a futures broker.
Do exchanges have to do KYC and share Travel Rule data?
Yes. Exchanges are MSBs under FinCEN rules and must comply with BSA/AML—including the Travel Rule for qualifying transfers.
What about sanctions?
U.S. platforms must screen users/transactions and block prohibited persons or jurisdictions per OFAC.
Why is New York different?
NYDFS imposes BitLicense/trust-charter requirements and extra standards (e.g., stablecoin reserves/redemption).
