Crypto futures trading is a lucrative space for traders. As it enables traders to make significant profits.
However, for US citizens, futures trading can be an unpleasant experience.
On one side, the rest of the world has access to some of the biggest cryptocurrency exchanges. The US traders have little to no available exchanges for crypto futures trading.
So the question is, why are many crypto futures exchanges banned in the US? Well, one of the common reasons is the lack of regulation.
Cryptocurrency is a sensitive area where many countries are still deciding whether to allow it or not.
Or figuring out how the regulation is going to work. Hence, many crypto exchanges fail to get operating licenses in many countries.
But there is more to it:
Why Can’t You Trade Crypto Futures In The US?
#1. Know Your Customer (KYC) Requirements
We know that the nature of cryptocurrencies is anonymous.
By theory, it is impossible to track down crypto payments. And this is what worries nations across the world about the misuse of cryptocurrencies.
For instance, crypto can be used for financing crime, money laundering, or other criminal activities. As a result, many countries are considering imposing a ban on it.
If not a ban, then cryptocurrency users need to fill in their personal information in order to deal with cryptocurrencies.
Most crypto exchanges do ask you to complete the know your customer or KYC requirements, for which you are required to submit your government I.D. and other details.
And using your KYC details, the authorities can look at your transactions if something suspicious occurs.
However, there are certain exchanges that let users use their services for crypto transactions or crypto trading without KYC.
But since the USA has strong regulations on what type of crypto exchanges can operate in the country, such crypto exchanges are not authorized to operate in the United States.
#2. Derivatives Trading
Derivatives trading is one of the most popular financial instruments for trading. As it allows traders to make significant profits with less capital.
But we also have to agree that derivatives are complex financial instruments, and they have a high risk and reward ratio.
Derivative trading offers you high leverage, which increases your buying power. As a result, with a small capital, you can open large positions and trade.
If the trade goes in your favour, you will enjoy great profits. Else, you will face a huge loss. Because of the high risk, the authorities don’t want retail investors to lose money.
As a result, in the U.S., retail investors are not allowed to participate in crypto derivatives trading. Because of this rule, many popular cryptocurrency exchanges are not allowed to operate in the U.S.
Before Trading in Futures, Know If you can lose more than you invested in Crypto Futures
Even when Binance was launched in the USA, they had a separate exchange for U.S. customers where derivatives trading wasn’t allowed.
A similar example can be seen when Coinbase, the largest crypto exchange in the USA, had to close its derivatives trading operations.
However, if you still wish to trade crypto futures in the US, going with a regular exchange would be your only option rather than going with unregulated exchanges like Binance Futures or ByBit Futures.
Regulated crypto exchange CME has Bitcoin futures listed. But to trade with CME, you are required to have huge capital.
Want to trade futures on CME? Know How much money you need to trade Bitcoin Futures
#3. Taxation and other reporting
Taxation is one of the major concerns for many governments around the world. As crypto cannot be treated like cash or an asset. But luckily, the U.S. government considers digital assets as a commodity, and any sort of gain would incur tax.
Moreover, in the USA, there is a rule that requires businesses to keep detailed records and report any cash transactions over $10,000 to the IRS.
Since most crypto exchanges operate at a global level, submitting a report to the IRS is challenging. Hence, many crypto exchanges have a separate entity just to operate in the United States.
Also, the Internal Revenue Service or IRS believes that many people are failing to report crypto income because they think it is not taxable.
But since the IRS does consider digital currencies like Bitcoin and Ethereum as commodities, they are subjected to paying tax on their crypto gains.
Even in 2021, IRS obtained a court order to check the records of Kraken, and earlier the same happened with Coinbase.
Through this court order, the IRS wanted to see the information of U.S. individuals who bought cryptos with fiat currency and transferred those funds into other wallets. Based on this information, the IRS wants to tax individuals for any sort of capital gain.
#4. State-Specific Regulations
State-specific regulations are another thing that made it impossible for many exchanges to do business in the United States.
In the U.S., each state has the right to write its own constitution. As a result, a business requires to adhere to multiple rules and regulations, which can be a little complicated.
Because of these state-specific regulations, many cryptocurrency exchanges do not operate in every U.S. state. Even in certain states in the USA, trading cryptocurrencies is not allowed.
However, some states like Ohio, Wyoming, and Colorado have adopted crypto-friendly laws.
But you also have states like New York and California that require companies to comply with KYC requirements. Or in Nebraska state, dealing with virtual currencies is prohibited.
FAQs
- Is crypto futures trading legal in the U.S.?
Yes, crypto futures trading is legal in the U.S.
However, you can only trade Bitcoin futures on authorized cryptocurrency exchanges or on the CME using specific brokers.
Want to trade on CME? Learn about Bitcoin CME Gap
Some of the brokers that allow crypto futures trading in the United States are Tradestation, Ironbeam, Edge Clear, and Interactive brokers.
However, these exchanges do not offer perpetual contracts, which unregulated exchanges like Binance or ByBit do.
- Can non-licensed exchanges still operate in the U.S.?
Non-license exchanges cannot operate in the U.S. Since businesses handling over $10,000 report their transactions to the IRS.
As a result, international exchanges aren’t authorized to operate in the United States.
Popular exchanges like Binance, which is operating in the USA, are running a separate entity from the global one to meet the requirements.
However, individual users may find alternative ways to trade cryptocurrency on unregulated exchanges using decentralized exchanges.
- Why are Crypto Futures exchanges like Bybit & Binance Prohibited in the U.S.?
The global version of ByBit prohibits usage for US customers because it’s not regulated by SEC and hence doesn’t meet the business requirements to operate in the United States.
Also, it came under investigation by the U.S. government for money laundering, tax fraud, and insider trading.
However, US users can still use Binance.us, which allows regular crypto buying/selling but doesn’t let you trade in crypto futures.
On the other hand, ByBit doesn’t adhere to the regulatory laws of financial regulatory authorities like the Security and Exchange Commission (SEC). As a result, it is illegal in the USA.
Conclusion
Trading cryptocurrencies is legal in the United States.
But you have a limited number of options.
On the other side, if you want to trade crypto futures, then there are a few options available for you.
Such as the Chicago Board of Trade or the Mercantile Exchange. Alternatively, you can trade crypto futures on decentralized exchanges, which can be risky.
