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Crypto Law/Level I · What crypto is in law/1.2 The labels/Lesson 2

Money and legal tender

The difference between something people use as money, something a statute calls money, and legal tender, and why crypto lands in different places for each.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Every purchase made with crypto is a taxable disposal, because the IRS says it is not currency and no de minimis exemption exists; the cheapest lawful way to pay is to spend coins whose basis is close to their value, such as dollar stablecoins bought at $1.
  2. When spending volatile coins, choose specific lots with the highest basis by adequate identification under Treas. Reg. §1.1012-1(j) to keep the gain small; for broker-held coins the lot must be identified by the time of sale.
  3. Paying in dollars and keeping appreciated crypto, then holding it over one year, can move the gain into the 2026 0% bracket up to $49,450 taxable income single; spending it earlier turns the gain short-term at ordinary rates.
  4. Merchants and individuals need no licence to accept crypto for their own goods under FinCEN FIN-2013-G001; the catch is that receipts are income at fair market value on the day received, reportable even without a Form 1099.

Materials31 U.S.C. §5103, the US legal tender statute (on law.cornell.edu)FinCEN guidance FIN-2013-G001 on persons administering, exchanging or using virtual currenciesThe Federal Reserve FAQ on whether businesses must accept cashThe IMF press release of 18 December 2024 on El Salvador

Wonder

  1. If people pay for things with bitcoin, why is it not legal money?
  2. Has any country ever forced shops to accept crypto, and does it still?
  3. Can a court call crypto “money” even though it is not legal tender?

Explore

  1. Three ideas often get mixed up. Economists call something money when it works as a medium of exchange, a unit of account and a store of value. Legal tender is much narrower: it is what the law says counts as valid payment of a debt. And many statutes use the words “money” or “funds” for their own purposes, such as licensing payment businesses or punishing money laundering. Crypto can sit inside one of these ideas and outside another. That is why the question “is bitcoin money?” has no single legal answer; the useful question is “money for which law?”
  2. In the United States, 31 U.S.C. §5103 says that US coins and currency, including Federal Reserve notes, “are legal tender for all debts, public charges, taxes, and dues.” Even that is weaker than it sounds. The Federal Reserve explains that no federal statute requires a private business, person or organisation to accept currency or coins as payment, although state law may say otherwise. Crypto tokens are not legal tender in the US at all. When the IRS issued Notice 2014-21, it observed that virtual currency “does not have legal tender status in any jurisdiction”; that was true in 2014, but not for long.
  3. US regulators still treat crypto as money-like for some purposes. In guidance FIN-2013-G001 of 18 March 2013, the Financial Crimes Enforcement Network (FinCEN), the Treasury bureau that fights money laundering, defined “real currency” as legal tender that circulates and is customarily accepted, and said virtual currency lacks some of those attributes. It then described “convertible virtual currency” as virtual currency with an equivalent value in real currency, or that acts as a substitute for it. Businesses that transmit it can be money transmitters (lesson 5.2.1). For tax, by contrast, the IRS says virtual currency is not currency that can produce foreign currency gain or loss.
  4. Courts have also called bitcoin money when a statute uses the word. In United States v. Faiella (S.D.N.Y. 2014), a federal judge held that bitcoin counts as money for the federal crime of running an unlicensed money transmitting business, because it can be bought with ordinary currency, acts as a denominator of value and is used to conduct financial transactions. On 24 July 2020, in United States v. Harmon, Chief Judge Beryl Howell of the federal court in Washington, DC held that bitcoin is money under the District of Columbia’s Money Transmitters Act, in a case about a bitcoin “mixing” service called Helix.
  5. One country did make bitcoin legal tender. El Salvador’s Bitcoin Law, approved on 9 June 2021, took effect on 7 September 2021 and required businesses to accept bitcoin. In December 2024 the government reached a staff-level agreement with the International Monetary Fund for a loan programme, which said private acceptance of bitcoin would become voluntary, taxes would be paid only in US dollars and the state would gradually unwind its Chivo wallet. Lawmakers amended the law in January 2025 to carry this out. The retreat is covered in lesson 8.1.5; it shows that a legal tender label can be given and largely taken back.
  6. Money issued directly by a central bank in digital form is called a central bank digital currency (CBDC). A US executive order signed on 23 January 2025 prohibits federal agencies from taking action to establish, issue or promote a CBDC, and ended any ongoing plans. Privately issued stablecoins are a separate category (lesson 1.2.5), and the GENIUS Act makes it unlawful to market one so that a reasonable person would think it is legal tender. A practical check: when someone says a token is “accepted as money”, ask which law they mean, in which country, and whether anyone is obliged to accept it.

Key facts

  • Under 31 U.S.C. §5103, US coins and currency, including Federal Reserve notes, are legal tender for all debts, public charges, taxes and dues.
  • The Federal Reserve states that no federal statute requires a private business to accept currency or coins as payment for goods or services.
  • FinCEN guidance FIN-2013-G001, issued on 18 March 2013, describes convertible virtual currency as virtual currency that has an equivalent value in real currency or acts as a substitute for it.
  • In United States v. Harmon, decided on 24 July 2020, the federal district court in Washington, DC held that bitcoin is money under the District of Columbia Money Transmitters Act.
  • El Salvador’s Bitcoin Law took effect on 7 September 2021, and a January 2025 amendment made private-sector acceptance of bitcoin voluntary.
  • A US executive order signed on 23 January 2025 prohibits federal agencies from establishing, issuing or promoting a central bank digital currency.

Exercise nine, six, three, one

9CollectList up to 9 ways you or people you know have paid for something in the last year, such as cash, a debit card, a bank transfer, a payment app, a gift card, a stablecoin or bitcoin.
6ClusterSort them into 6 categories: legal tender, bank money, a payment company’s balance, stablecoins, other crypto, and anything that does not fit.
3DistillReduce the 6 categories to 3 groups: payments a seller must legally accept for a debt, payments a seller may choose to accept, and payments whose legal status you are unsure of.
1CrystallizeWrite 1 sentence explaining, in your own words, how something can count as “money” under one law without being legal tender.

Fact check

Dates, figures and claims checked against the published sources listed below.

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