Bitcoin and the State: Regulation, Adoption, and Resistance

There is a structural tension at the heart of Bitcoin’s relationship with government, and no amount of lobbying, litigation, or legislation will resolve it. Bitcoin is a permissionless protocol. The state is a permissioning institution. These two things will coexist, sometimes productively and sometimes in open conflict, for as long as both exist. Understanding this tension — where the state’s power is real, where it is illusory, and where you stand as an individual — is essential to using Bitcoin responsibly.

We are not anarchists here. We pay our taxes. We comply with the law. But we also recognize that understanding the regulatory landscape is different from believing that the regulatory landscape is settled, coherent, or necessarily just. Right now, it is none of those things.

The Classification Problem

The most basic regulatory challenge with Bitcoin is that existing legal categories were not built for it. Is Bitcoin a currency? A commodity? Property? A security? The answer, depending on which U.S. federal agency you ask, is “yes.”

TheIRStreats bitcoin as property. Every transaction — spending, selling, exchanging — is a taxable event. If you bought bitcoin at $10,000 and spent it when it was worth $50,000, you owe capital gains tax on the $40,000 gain. This is the law, it is clearly stated, and you should comply with it.

TheCFTC(Commodity Futures Trading Commission) treats bitcoin as a commodity, which gives it jurisdiction over Bitcoin futures and derivatives markets.

TheSEChas generally maintained that Bitcoin itself is not a security, distinguishing it from most other crypto tokens. Former SEC Chair Gary Gensler stated publicly that Bitcoin was a commodity, while arguing that most other digital assets were securities.

This fragmented classification creates confusion, but it also reflects something real: Bitcoin genuinely does not fit neatly into existing categories. It behaves like a commodity (scarce, fungible, mined), is taxed like property, functions as a payment network, and is traded like a financial asset. The regulatory framework will remain awkward until lawmakers write rules specifically designed for this technology, rather than forcing it into boxes built for stocks and soybeans.

The ETF Era

The approval of spot Bitcoin ETFs in the United States in January 2024 was a watershed moment for Bitcoin’s relationship with the traditional financial system. For the first time, ordinary investors could gain Bitcoin exposure through standard brokerage accounts, in a regulated vehicle, without dealing with exchanges, wallets, or private keys.

The scale of adoption has been significant.

The ETF matters for several reasons. It provides a regulated on-ramp that institutional investors and financial advisors can use. It creates consistent price discovery through established market infrastructure. And it signals — whether you like it or not — that Bitcoin has been accepted into the mainstream financial system as a legitimate asset class.

There is a reasonable debate about whether ETF adoption is good for Bitcoin’s long-term decentralization. When millions of people hold bitcoin through BlackRock rather than in self-custody, they gain price exposure but not sovereignty. They cannot run a node. They cannot verify their own transactions. They hold a claim on bitcoin, not bitcoin itself. This is a real trade-off, and we should be honest about it rather than pretending that all adoption is equally valuable.

That said, the ETF exists. It is attracting capital. And for many people, it will be the first step toward understanding Bitcoin more deeply. We should welcome that, while being clear about what self-custody offers that an ETF never will.

International Landscape

Bitcoin’s regulatory treatment varies dramatically across jurisdictions, and the variation reveals more about each government’s priorities than about Bitcoin itself.

El Salvadormade Bitcoin legal tender in September 2021, the first country to do so. The government has purchased bitcoin for its national treasury and built infrastructure for Bitcoin-based payments. The experiment has been polarizing — critics point to low adoption rates among citizens and IMF pressure, supporters point to tourism growth and growing treasury value.

Chinabanned Bitcoin mining and trading in 2021, after years of escalating restrictions. The ban was significant — China had been home to an estimated 50-75% of global mining hash rate. Within months, miners relocated to the United States, Kazakhstan, Canada, and other jurisdictions. Bitcoin’s hash rate recovered fully within approximately six months, demonstrating the network’s resilience to hostile state action.

The European Unionimplemented the Markets in Crypto-Assets (MiCA) regulation, creating the first comprehensive regulatory framework for digital assets in a major economic bloc. MiCA establishes rules for crypto-asset service providers, stablecoin issuers, and market conduct.

Other notable jurisdictions:The UAE and Singapore have positioned themselves as crypto-friendly regulatory environments. India has imposed significant taxes on crypto gains while stopping short of a ban.

The pattern that emerges is instructive. Countries that ban Bitcoin do not eliminate it — they push it underground and lose regulatory visibility. Countries that create clear frameworks attract capital and talent. The protocol does not care about borders, but the businesses and users built around it do.

Operation Choke Point 2.0

One of the most significant and underreported regulatory developments has been the coordinated effort by U.S. banking regulators to restrict the cryptocurrency industry’s access to the banking system. Critics have termed this “Operation Choke Point 2.0,” drawing a parallel to the Obama-era Operation Choke Point, which targeted legal-but-disfavored industries by pressuring banks to drop their accounts.

In 2022 and 2023, several crypto-friendly banks — Silvergate, Signature, and Silicon Valley Bank — failed or were shut down. While the specific causes varied, the effect was to dramatically reduce the crypto industry’s access to banking services. Federal banking regulators issued guidance that discouraged banks from serving crypto companies, and multiple crypto businesses reported losing bank accounts without clear cause.

This matters because it reveals where the state’s power over Bitcoin is actually concentrated. The state cannot shut down the Bitcoin protocol. It cannot stop you from running a node, generating a private key, or broadcasting a transaction. What it can do — and what it has done — is make it difficult for businesses that bridge Bitcoin and the traditional financial system to operate. The on-ramps and off-ramps are vulnerable. The protocol is not.

Davidson and Rees-Mogg anticipated this dynamic in The Sovereign Individual, published in 1997: the state’s power to control digital commerce would increasingly depend on controlling the interfaces between the digital and physical economies. Two decades later, that prediction looks remarkably precise.

State Bitcoin Reserve Proposals

A development that would have seemed absurd five years ago has entered serious policy discussion: the idea that nation-states should hold bitcoin as a reserve asset, alongside gold and foreign currencies.

The logic behind a state Bitcoin reserve is straightforward: if Bitcoin is a sound monetary asset with a fixed supply, and if other nations are accumulating it, then failing to hold any represents an asymmetric risk. The potential downside of holding a small allocation is limited. The potential downside of holding none, if Bitcoin continues to appreciate and other nations hold it, is significant.

Whether this logic is compelling depends on your view of Bitcoin’s long-term trajectory. But the fact that the conversation is happening at all — in legislatures, not just on podcasts — marks a significant shift in how states relate to Bitcoin. We have moved from “ban it” to “how much should we hold” in a remarkably short time.

What Regulation Can and Cannot Do

Let us be precise about the state’s actual power over Bitcoin, because both maximalists and skeptics tend to get this wrong.

Regulation can control the interfaces between Bitcoin and the legacy financial system. It can regulate exchanges, require KYC (Know Your Customer) verification, impose tax reporting obligations, restrict banking access for crypto businesses, and make it inconvenient to convert between bitcoin and fiat currency. These are real powers with real consequences for real people.

Regulation cannot stop the Bitcoin protocol from functioning. It cannot prevent a person from generating a private key, which is just a random number. It cannot prevent a person from running a node, which is just software on a computer. It cannot prevent a person from broadcasting a transaction, which is just data sent over the internet (or via satellite, or even radio). Short of shutting down the internet globally and permanently — an act that would cause far more economic damage than Bitcoin could ever threaten — the protocol cannot be stopped by any single government or even by coordinated international action.

This is not a theoretical claim. China, the most sophisticated surveillance state in history, banned Bitcoin. The hash rate left and came back. The network did not pause. People in China still hold and trade bitcoin, though the legal risk is real.

The practical implication is that regulation shapes the experience of using Bitcoin but does not determine whether Bitcoin exists or functions. The question is not whether Bitcoin will survive regulation but how regulated interfaces will evolve alongside the permissionless protocol.

A Responsible Posture

Given all of this, what should a thoughtful person actually do?

Comply with tax law. This is not optional and not ambiguous. The IRS treats bitcoin as property. Report your gains, report your losses, keep records. Use tax software designed for crypto transactions. The cost of compliance is small. The cost of non-compliance is enormous and unnecessary.

Understand your jurisdiction. Regulatory treatment varies by country, by state, and over time. What is legal in one jurisdiction may not be in another. If you live in a jurisdiction with restrictive crypto regulation, understand the rules before you act. Ignorance is not a defense.

Recognize that regulatory clarity benefits everyone. Clear rules are better than ambiguous rules, even if the clear rules are imperfect. When businesses know what is legal, they can build. When users know their obligations, they can comply. The worst regulatory environment is not a strict one — it is an uncertain one, where enforcement is arbitrary and rules change without notice.

Maintain self-custody capability. Even if you hold some bitcoin in regulated vehicles like ETFs, maintain the ability to hold bitcoin in self-custody. This is not paranoia. It is infrastructure. If banking access gets restricted, if an exchange fails, if regulatory policy shifts, self-custody ensures that your bitcoin remains yours. The whole point of this technology is that you do not need anyone’s permission to hold or use it. Exercise that capability, even if you do not need it today.

Stay informed. The regulatory landscape is changing rapidly. What we have written here reflects conditions as of March 2026, and some of it will be outdated within months. Follow credible sources. Understand the difference between regulatory proposals and enacted law. Do not panic over headlines.

The relationship between Bitcoin and the state will remain tense, complicated, and evolving. That is not a problem to solve. It is a condition to navigate. And navigating it well — legally, practically, with clear eyes — is part of what it means to build a sovereign financial life.