Regulation and enforcement

Wonder

1. How does a decentralized network fit into legal frameworks built for banks?
2. Why did the US government sanction open-source software, and what was the outcome?
3. What changed in 2025 that shifted crypto from enforcement targets to national reserves?

Explore

1. In 2013, FinCEN issued guidance (FIN-2013-G001) treating virtual currency exchangers as money transmitters under the Bank Secrecy Act. This placed exchanges like Mt. Gox and later Coinbase under federal anti-money-laundering obligations. The SEC later applied securities law to tokens: its 2017 DAO report explicitly applied the Howey test to determine if digital assets were investment contracts, setting a precedent for token regulation that persists today.
2. Enforcement escalated through the 2020s. In November 2023, Binance pleaded guilty to US anti-money-laundering and sanctions violations and agreed to pay about $4.3 billion; its founder pleaded guilty to failing to maintain an anti-money-laundering program, paid a separate $50 million fine, served four months, and was pardoned in October 2025. It was one of the largest corporate penalties in US history and signaled that US law reached foreign exchanges serving American users.
3. The Tornado Cash case highlighted tensions between sanctions and open-source code. In August 2022, OFAC sanctioned the smart contract addresses of this Ethereum mixer. A federal appeals court struck down the sanction in 2024, ruling that its immutable smart contracts were not ‘property’ that the sanctions law allowed the government to block. The sanction was lifted in 2025, though the ruling binds only that circuit, and in August 2025 developer Roman Storm was convicted on a money-transmitting conspiracy charge, so the legal limits remain contested.
4. The European Union took a legislative approach with MiCA (Regulation 2023/1114). Stablecoin provisions applied from June 2024, requiring issuers to hold reserves and undergo authorization. Broader rules for Crypto-Asset Service Providers followed in December 2024. This created the first comprehensive EU-wide framework, harmonizing national approaches that had previously varied significantly between member states like France and Germany.
5. China took a different path, banning crypto trading and mining entirely in 2021. Miners relocated en masse, and the network’s hashrate fell sharply before recovering elsewhere. The ban reflected a desire to maintain central control over monetary policy and data sovereignty, contrasting sharply with the US approach of integrating crypto into existing regulatory structures rather than prohibiting it.
6. In March 2025, an executive order created a Strategic Bitcoin Reserve for the United States, initially holding bitcoin the government had already forfeited in legal cases. In July 2025, the GENIUS Act established federal rules for payment stablecoins, clarifying their status and requirements. The SEC also dropped several major cases during this period. These moves signal a pivot toward institutional integration, treating bitcoin as a strategic asset rather than merely an unregulated commodity or security.

Key facts

Exercise nine, six, three, one

Fact check

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

• FinCEN, FIN-2013-G001: Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Trading Virtual Currency
• US SEC, Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (July 2017)
• US Department of Justice, Press Release: Binance and Founder Plead Guilty to AML Violations (November 2023)
• European Parliament and Council, Regulation (EU) 2023/1114 on Markets in Crypto-Assets
• White House, Executive Order Establishing a Strategic Bitcoin Reserve (March 2025)