The meteoric rise of cryptocurrency in the public consciousness in the past two decades can hardly be overstated. Bitcoin’s launch in 2009 set the stage for the worldwide proliferation of digital tokens and coins.
As of April 22, 2025, there are well over 14 million cryptocurrencies available around the world, with new coins launching daily. (Although some estimates suggest that at least half of all cryptocurrencies that are launched will eventually fail.) Combined, these tokens account for nearly $3 trillion in market value, enough to rival the biggest publicly traded companies on earth.
Much of the initial hype surrounding the crypto space was based on speculation about the potential of the technology to upend traditional banking—as well as to make early investors very wealthy. But as time has passed, amid volatility in coin prices, the rise and fall of countless trendy tokens, and the threat of scams, investors may be wondering whether cryptocurrencies are indeed a financial revolution, or if they may be too risky for anything beyond speculative trading.
In this article, we aim to clarify common concerns so investors can proceed more confidently.
Key Takeaways
- The legal and regulatory status of cryptocurrencies is highly dependent upon jurisdiction, although regulation is nonexistent in some places.
- Investors in crypto face risks from the tax implications of the space, particularly if they move between or do business in areas with different sets of regulations.
- Other key risks to keep in mind include sometimes-extreme volatility of crypto prices and the ever-present risk of loss due to theft or hacking.
- Reputable exchanges like Coinbase and Binance may have more robust support and security structures in place compared with up-and-coming exchanges.
Crypto Is Legal, But Regulations Vary
Despite massive popularity and widespread adoption—more than a quarter of U.S. adults reportedly own cryptocurrency—the United States still lacks a clear regulatory framework for this technology as of 2025.
The Financial Innovation and Technology for the 21st Century Act (or FIT21), a bill that would clarify the role of the Commodity Futures Trading Commission (CFTC) as the lead U.S. crypto regulatory authority, passed the House of Representatives in May 2024. However, the bill has not moved forward since that time.
As a result, cryptocurrencies in the U.S. are subject to regulation by a number of different federal and state agencies, potentially leading to discrepancies from one area to another.
In 2023, the European Union’s governing body, the European Council, approved the Markets in Crypto-Assets Regulation (MiCA), a world-first set of umbrella rules for the regulation of a number of different kinds of cryptocurrency assets across the EU. MiCA came into full force across the Union by 2024 and includes rules and a supervisory procedure for crypto-assets, crypto platforms, and related service providers. There are particular implications for the issuance of new cryptocurrency tokens.
Though it is a major player in crypto development, mining, and trading, Asia is one of the least unified regulatory environments for this technology. China has effectively banned the use of cryptocurrencies with strict limitations on exchanges, mining, and more.
On the opposite end of the spectrum, the Japanese government has more fully embraced cryptocurrency both as a form of legal property and as a type of money under the supervision of the country’s Financial Services Agency. In between are nations like India, which at one point had a ban on cryptocurrencies but has reversed course in recent years. India now faces the challenge of developing regulations for a new and enthusiastic market.
In the U.S., government agencies like the U.S. Securities and Exchange Commission (SEC) oversight of the cryptocurrency space, or may take other actions to impact crypto projects. For example, the SEC has previously brought lawsuits against crypto exchanges alleged to have violated securities regulations. Meanwhile, the Federal Reserve Board has provided reports on central bank digital currencies and stablecoins, as well as their risks. These agencies may play an important role in combating or preventing scams and fraud, though many investors remain cautious.
Crypto Tokens Are Property and Taxed As Such
Perhaps the single biggest concern for individual investors is tax reporting. Investors should be prepared to report all cryptocurrency sales, income, payments, and conversions to the Internal Revenue Service (IRS).
Because cryptocurrencies are defined as property and not currencies, they may be subject to capital gains taxes. One of the most significant legal risks for crypto investors is improperly reporting taxes.
Warning
Due to the complex and shifting nature of crypto regulation, even investors attempting to follow the appropriate guidelines may find themselves failing to properly report.
Should large-scale regulatory changes to cryptocurrency—such as the widespread banning of particular types of tokens—take effect, crypto investors may also run into legal issues. This may also be true for investors traveling from one jurisdiction to another. Just because cryptocurrency ownership, mining, trading, and so on are permissible in one area does not mean that the same regulations apply everywhere.
Crypto Investments Aren’t Guaranteed Returns
One of the primary reasons many investors see cryptocurrencies as a risky investment is their volatility.
Despite their popularity, even the largest digital currencies can experience significant swings in price. As an example, Bitcoin—far and away the largest crypto by market value and typically a bellwether for a host of smaller tokens—reached as high as $106,136 per coin and as low as about $76,273 per coin between January 1 and April 22, 2025. Losing roughly a quarter of its total value in the span of a few weeks is not even the greatest example of historical volatility for Bitcoin, either.
On the other hand, supporters of Bitcoin might point to the token’s longer-term performance—in the one-year period up to April 22, 2025, it climbed by more than 40%, massively outpacing the S&P 500.
Another significant risk for investors is the loss of capital due to scams and theft. The risk of having your tokens stolen or hacked remains real—about $2.2 billion in crypto was stolen from exchanges in 2024 due to hacks, a sizable uptick year-over-year, and investors lost more than $10 billion in crypto due to thefts in 2024 alone. Fortunately, there are a host of ways to safeguard tokens as well.
Beware of Scams and Unsecure Exchanges
One of the best ways to protect your crypto investments is by utilizing a trusted platform to facilitate your transactions. Investopedia’s list of best crypto exchanges and apps is a great place to start. When searching, consider both major players like Coinbase, Binance, or Kraken as well as less well-known decentralized exchanges.
Finding a legitimate crypto exchange or platform is key. In this case, the reputation of a provider can go a long way—look for platforms with a strong reputation and a widespread user base.
Tip
You’ll also want to review any potential trading platform’s approach to regulation, the security features it includes to protect your tokens, and more before investing.
When preparing to buy and sell crypto, do your due diligence. Review licenses for providers, fees, and documentation for developers. Any developer pushing an ICO should have ample material to offer you about the development of the project and its specific parameters, for instance.
Most importantly of all, trust your gut. Watch out for “too-good-to-be-true” scams promising easy, outsized returns. Due to their decentralized, anonymous nature, cryptocurrencies have a tendency to entice fraudsters—stay vigilant to protect your investments.
Where Is Crypto Illegal?
A handful of countries have banned cryptocurrency, either all tokens as a general rule or specific coins like Bitcoin. These include China, Saudi Arabia, Pakistan, and Bolivia. Investors hoping to do business in these countries would do well to carefully control any cryptocurrency investments so as not to run afoul of the law.
Do You Have To Report Crypto on Your Taxes?
In many cases, yes. In the U.S., any tax filer who sold cryptocurrencies, received any as payment, or engaged in several other categories of crypto transactions should report these instances on their taxes. Consult with a tax professional specializing in crypto for additional information based on your jurisdiction.
How Can You Protect Yourself Against Crypto Scams?
One of the best protections against crypto scams is knowledge. Spend time learning about some of the common tactics scammers use, such as phishing, rug pulling, and fake ICOs. Learn to identify signs of potentially risky opportunities. Store your crypto in a hardware wallet or otherwise use physical measures to protect your account information.
The Bottom Line
Cryptocurrency is big business in 2025, having gained critical popularity around the world and grown to include millions of tokens representing trillions of dollars worth of market value. Many optimistic investors see this stage of growth as merely a midway point toward a much larger crypto market; others expect already-massive prices of tokens like Bitcoin to struggle to gain much more ground. Of course, it’s impossible to know what the future of the market looks like.
Many risks remain for investors in the crypto world as well. Besides the ever-shifting regulatory landscape, investors must also be prepared to navigate complex tax requirements. Failing to properly report crypto activity may lead to penalties. And billions of dollars worth of digital tokens are still lost each year due to scams, thefts, and hacks of exchanges.
It is not clear yet whether cryptocurrency may still be a promising financial technology of the future or whether it is destined to be a haven for scammers and fraudsters who threaten to detract from the activities of legitimate investors. What is apparent is that there is the potential for investors to make money in the digital currency world and indeed to revolutionize business and other aspects of everyday life with the technology. However, concerns and risks remain, so vigilance is key.
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