Why Cryptocurrencies Are Still Controversial

Regulatory approaches to cryptocurrency have shifted in recent years. Earlier enforcement-focused strategies emphasized applying existing securities laws to crypto firms, while more recent efforts have focused on clarifying how digital assets should be classified and regulated. These changes reflect an ongoing debate about how to balance innovation, market growth, and consumer protection.

Until the current administration, the federal government largely held the view that the Securities and Exchange Commission (SEC) was the primary regulator to oversee the cryptocurrency industry, with the Commodity Futures Trading Commission (CFTC) asserting jurisdiction over certain cryptocurrencies. The reasoning is complex and riddled with exceptions, but it is largely based in a 2017 SEC analysis that concluded that many blockchain-based tokens are “investment contracts” that qualify as securities like stocks, bonds, and mutual fund shares. From 2017 to 2023, the SEC launched several enforcement actions against crypto companies such as Munchee, Ripple Labs, BlockFi, Coinbase, and Binance, alleging these companies were either issuing or trading unregistered securities. 

Unsurprisingly, the crypto industry was not happy with the SEC’s oversight. In response to a notice of its pending enforcement action in March 2023, the crypto exchange Coinbase published a blog post entitled “We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead.” The lack of specific legislation or rules surrounding crypto assets has been a common complaint of the crypto industry in regards to regulation. When contacted by Consumer Reports for this article, Coinbase and other exchanges said that they are in favor of industry regulation and clear rules. John D’Agostino, head of strategy for Coinbase Institutional, responded to our request for comment, saying, “Coinbase supports forward momentum that strengthens the industry. Every bipartisan step toward regulatory clarity is good for crypto and good for America.”

During the current administration, regulators have changed course drastically on cryptocurrencies. In February 2025, the SEC significantly scaled back crypto enforcement activities and dismissed its civil enforcement action against Coinbase. In July, SEC chairman Paul S. Atkins claimed that “despite what the SEC has said in the past, most crypto assets are not securities.” That statement essentially brings the regulator into alignment with the views of the industry, but doesn’t definitively answer what federal agency, if any, is currently regulating the industry. To address that question, both the industry and the current administration are calling for new laws.

Two consequential crypto bills have been moving through Congress. The first, known as the GENIUS Act, was signed into law by President Trump last summer. It is the first federal law explicitly governing crypto, and it establishes rules around stablecoins, which (as we explain in part 1 of this series) are digital assets intentionally pegged to fiat currencies such as U.S. dollars to prevent them from experiencing the volatility common to many other crypto assets. The new law requires stablecoins to be backed by high-quality assets such as U.S. Treasurys and makes stablecoin issuers subject to the Bank Secrecy Act, the law that compels financial institutions to institute anti-money-laundering practices and cooperate with law enforcement. 

Another, more comprehensive bill known as the CLARITY Act has passed in the House and was under consideration by the Senate when this article was being prepared. It aims to establish crypto-specific rules for which assets fall under SEC authority, and which ones would be subject to oversight by the CFTC. It would also require crypto exchanges to comply with the Bank Secrecy Act. 

The GENIUS Act defines a “payment stablecoin” as a digital asset that is redeemable at a fixed monetary value, but it is not treated as a deposit, commodity, or security under federal law. It also requires that all U.S. stablecoins be backed by low-risk assets such as dollars or short-term U.S. Treasurys. Stablecoins can be issued only by federally or state-approved entities, not directly by a bank or credit union.

That means if a consumer purchases stablecoins from a financial institution, the coins are not subject to FDIC protection. Once you own stablecoins, you can use them to buy and sell goods or services, much like traditional currencies, but limited merchant acceptance, as well as transaction fees and other frictions, has so far kept direct retail payments with stablecoins relatively uncommon.

So even though stablecoins have yet to take off with most American consumers, the new law has done a great deal to legitimize stablecoins and prompt interest by the traditional finance industry.  

In fact, most of the usage of stablecoins in the U.S. right now is by professional and institutional traders. But some experts see potential for consumers when it comes to cross-border transactions.

“Right now, if you want to make an international payment, it is very expensive,” says Prasad. “It is very slow, it is very cumbersome, and a stablecoin helps you get around all of that.” 

If the CLARITY Act passes the Senate as written, it would formalize how digital assets are classified, with many cryptocurrencies qualifying as commodities rather than securities. CLARITY also gives primary oversight of crypto exchanges to the CFTC. The CLARITY Act would codify crypto exchanges as Digital Commodity Exchanges, distinguishing them from brokerages, which operate under SEC regulation with a different set of consumer protections. For instance, brokerages are covered by Securities Investor Protection Corporation (SIPC) insurance, which covers customers’ investments up to $500,000 and cash up to $250,000 in case a brokerage fails. There would be no such insurance for customers of crypto exchanges.

Brokerage failures are relatively rare, but high-profile crypto failures have been quite common. In just the past four years, major crypto platforms such as Voyager Digital Holdings, Celsius Network, BlockFi, FTX, and Bittrex have all declared bankruptcy, and investors’ only recourse for reclaiming lost funds from these failures is through the courts. 

Industry watchers have noted that both the GENIUS and CLARITY Acts are extremely friendly to the crypto industry, which lobbied hard for their passage.

Lee Reiners, a lecturing fellow at Duke University and a former bank examiner at the Federal Reserve Bank of New York, points out that the crypto industry was a major spender during the 2024 election cycle. Indeed, according to the Federal Election Commission’s list of top-spending super PACs for the 2024 election cycle, Fairshake, a political action committee aligned with the crypto industry, spent north of $200 million dollars to candidates seen as supportive of the sector. “They’re spending that money for a reason,” Reiners says, pointing to the sector’s interests in shaping how its regulated. "They expect a return." 

Critics of the crypto industry also point out that exchanges have lobbied for CFTC oversight because it would result in a lighter-touch regulatory environment, given the CFTC’s smaller size. The SEC has about 4,800 full-time staff and an annual budget of $2.6 billion; as of last July, the CFTC had a staff of 636 full-time employees and a budget of just under $400 million, but that was before a round of layoffs. “I think it’s pretty clear, if you gave the choice to any industry: Would you rather be overseen by the agency with less people and less budget, or more people, more budget? They would choose the agency with less people and less budget,” says Reiners. “It’s not rocket science.”

For stablecoin issuers and crypto exchanges to comply with the Bank Secrecy Act, they would need to implement anti-money-laundering protocols, track suspicious activity, and comply with law enforcement investigations into financial crimes. But crypto critics point out that those requirements don’t apply to unhosted crypto wallets and peer-to-peer networks that exist off of exchanges. That makes cryptocurrency traffic off of exchanges far more difficult to monitor and police.

The crypto exchanges we reached out to insist that they are dedicated to fighting illicit activity on their exchanges using tools such as know-your-customer protocols to confirm the identity of exchange users, as well as sophisticated monitoring for money laundering and fraud. 

There is some evidence that these practices have reduced the percentage of crypto transactions that relate to criminal activity. In fact, two of the exchanges we contacted cited a recent Chainalysis report showing that the percentage of illicit crypto transactions had fallen in 2024 to 0.14 percent of all crypto transactions (the figure for 2023 was 0.61 percent). However, the same report also states that the percentage declines are at least partly based on the massive increase over the past few years in legitimate crypto transactions, and the 2024 number is likely to be revised upward significantly as crypto security firms like Chainalysis identify previously unknown bad actors.

As a matter of raw volume, the scale of crypto crime is enormous. The Chainalysis report states that the total dollar value landing in known criminal wallets for 2024 was $40.9 billion (the firm estimates that will be revised up to $51.3 billion, which would represent a year-over-year increase of $5.2 billion). The bad actors behind these transactions are, the report says, an international rogues list of terrorist financiers, sanctions evaders, Russian darknet drug dealers, Chinese opioid vendors, ransomware hackers, identity scammers, and pump-and-dump financial criminals. 

According to experts like Reiners, the anti-money-laundering controls required by the government can only do so much, given the nature of crypto technology. “[Once I have a] Bitcoin in an unhosted wallet that I control and only I control, I can then send that Bitcoin to anyone else anywhere in the world,” he says. “They can be a member of Hamas, they can be in the North Korean Army, right? This is the fundamental problem with crypto and money laundering. You can impose all the requirements in the world on the exchanges and the intermediaries, but as long as we have unhosted wallets, bad actors are going to be able to freely send crypto to each other without any type of oversight or checks.”

Crypto has also greased the wheels of frauds and scams that take advantage of ordinary citizens. The FBI’s latest Internet Crime Report shows that in 2024, $9.3 billion was lost to crypto-related fraud, a 66 percent increase from the previous year. The range of deception and fraud is staggering, including dodgy investments, extortion, fake tech support, impersonating government officials, threats of harm, identity theft, romance scams, and malware. 

Scammers frequently use a tactic known as “pig butchering,” a long-con approach where criminals choose their victims and build up a trusting relationship with them over time (frequently using dating websites), eventually asking for large transfers of crypto to a fraudulent investment that the scammer recommends. The requests often get larger and larger as the fraudster drains the bank accounts of their victim, only to eventually disappear with the money.

These online criminals frequently end up sending their victims to real-world crypto ATMs in convenience stores and gas stations. These machines, also known as convertible virtual currency kiosks, look like conventional ATMs but are designed to let users withdraw money from their bank accounts in exchange for cryptocurrency that can be sent to a scammer’s crypto wallet. The U.S. government’s Financial Crimes Enforcement Network (FinCEN) observed so much criminal activity occurring at these machines that it saw fit to issue a warning last August to financial institutions to be on the lookout for suspicious activity when their customers were using them. The warning noted that the kiosks were also being used by drug gangs looking to quickly and easily launder money into overseas wallets. 

Even sophisticated crypto investors have been subject to frightening crimes. Over the past few years, high-profile cases of home invasions, kidnappings, and tortures of digital asset investors have spooked many in the crypto community. For instance, attackers have held their victims hostage and threatened them with harm until they give up their passwords and “seed phrases” that give access to the victim’s crypto wallet. 

“If you have access to that crypto wallet, you’ve got the money and there’s nothing that any outside group can do about it,” says Molly White, a prominent crypto critic and author of the Citation Needed newsletter. “That has good and bad implications because, on the one hand, the government can’t stop you from sending money to whoever you want, which is a good thing for many people. But on the other hand, there’s no one to step in and say, ‘Hey, this transaction looks very suspicious. Is anyone holding a gun to your head?’”

When cryptocurrencies were just a speculative asset class used by a fringe community of investors, the wild valuation swings were a risk born by those investors alone. But as crypto has grown into a multitenticaled sub-economy with a market capitalization estimated by the International Monetary Fund to be $4.2 trillion in the third quarter of 2025, its potential effects on the larger economy have become a concern for many experts. 

That’s because digital assets have increasingly found their way into conventional investment instruments. Asset management companies such as BlackRock and Franklin Templeton have built large crypto exchange-traded funds (ETFs) that allow retail investors to gain exposure to crypto markets through conventional broker dealers. These securitized investments offer greater consumer protections but also spread the volatility risk to a new type of investor. 

Crypto is increasingly becoming part of the investment strategies of major banks as well. In December 2025, Bank of America began advising some of its wealth management clients to invest 1 to 4 percent of their portfolios in digital assets.

And the White House has encouraged regulators to reduce barriers for retirement plans to allow cryptocurrency exposure. In August 2025, the current administration released an executive order directing the Department of Labor and the SEC and other federal regulators to revise guidance to make it easier for defined-contribution plans such as 401(k)s to offer “alternative assets” such as private equity, real estate, and digital assets.

Economists like Prasad of Cornell say that market meltdowns like the crypto valuation tumble that began last October—when bitcoin lost more than 46 percent of its value in less than six months—have yet to infect the broader economy, but current trends are making it more likely. 

“As crypto gets more interwoven into retail investors’ and institutional investors’ portfolios and as traditional financial institutions start increasing their exposure to both crypto investment and crypto-related financial asset trading,” he says, “that risk that the traditional financial system could be infected by problems in the crypto world certainly starts becoming a source of increasing concern.”