Sign Up for PublicationsCryptocurrency: Federal Preemption Issues in Pending Legislation
As cryptocurrency has become more commonplace over the past several years, states have taken various measures to regulate digital currency by amending existing statutes, creating new regulatory regimes, enacting licensing requirements, and pursuing regulatory and criminal enforcement actions.
Shortly after his second term commenced, President Trump issued an executive order that established a Presidential Work Group on Digital Asset Markets that was tasked with “propos[ing] a Federal regulatory framework governing the issuance and operations of digital assets.” Exec. Order No. 14178, 90 Fed. Reg. 8647 (Jan. 31, 2025). This past July, the Working Group released a comprehensive report, “The President’s Working Group on Digital Asset Markets, Strengthening American Leadership in Digital Financial Technology at 55” (July 2025). The Report included several recommendations, including the recommendation that Congress adopt legislation that divides jurisdiction over digital asset regulations between the SEC and CFTC. The Report also urged Congress to “provide that federal law preempts state law with respect to securities and commodities laws applicable to SEC- and CFTC-registered intermediaries, including in the areas of state virtual currency business, ‘blue sky,’ and commodity broker laws.” Id.
In line with the Trump Administration’s recommendations, recent and pending federal legislation has sought to provide a clear regulatory framework to govern digital currency and blockchain technology.
On July 18, 2025, President Trump signed the GENIUS Act into law. Fact Sheet: the GENIUS Act Protects American Consumers, U.S. Senate Committee on Banking, Housing, and Urban Affairs. The GENIUS Act creates a comprehensive regulatory framework for stablecoins, which are a type of cryptocurrency that are backed by assets considered to be reliable, such as national currency or a commodity. The GENIUS Act requires that state regulators have stablecoin frameworks that are “substantially similar” to the federal framework the GENIUS Act creates.
The Digital Asset Market Clarity Act of 2025 (the “CLARITY Act”) was passed by the U.S. House of Representatives on July 18, 2025, with a bipartisan vote of 294 to 134. The Senate Banking Committee and the Senate Agriculture Committee have recently announced that they will hold markups of the CLARITY Act on January 15, 2026, during which the committees will review, amend, and vote on the bill in committee before it advances to a full floor vote in the Senate.
The CLARITY Act establishes a framework for regulating digital assets that proposes dividing jurisdiction between the CFTC and the SEC. The bill gives CFTC authority to regulate digital currencies, which it defines as blockchain-based assets that are not securities under federal law, and the intermediaries that trade or custody them. Thus, the CFTC would have exclusive authority over digital commodity spot markets. The SEC, on the other hand, would have authority over primary market crypto transactions.
The CLARITY Act would preempt many state laws aimed at regulating digital currency. The bill amends the Securities Act to define digital commodities as “covered securities” under Section 18(b) of the Securities Act. H.R. 3633 § 308. This would preempt state laws and regulations that require the registration of digital commodities, thereby preempting the application of state blue-sky laws. The Clarity Act also gives the CFTC exclusive jurisdiction over digital commodity exchanges. Id. § 404. And it has a provision preempting state laws governing registered digital commodity brokers. Id. § 406.
If the CLARITY Act becomes law, there is also the possibility that courts find that it implicitly preempts state law, as courts have found that state law that conflicts with the federal securities laws may be preempted even in the absence of explicit preemption. See, e.g., Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119 (9th Cir. 2005); Jevne v. Superior Court, 35 Cal. 4th 935 (2005).
In addition to the CLARITY Act, the Senate has released discussion drafts of the Responsible Financial Innovation Act of 2025 (“RFIA”). The RFIA draft released by the Senate Banking Committee in September 2025 contains a provision that would expressly preempt state licensing and regulatory requirements, including blue-sky laws and state money-transmitter laws. Senate Banking Committee’s RFIA draft § 109(f).
In light of the Trump administration’s efforts to establish a federal regulatory regime to regulate digital currency and assets, many states have expressed the need to preserve state authority over digital asset regulations in the name of consumer protection. Indeed, state pushback to federal efforts to regulate digital currency is not new. Under the Biden administration, states challenged the SEC’s position that all cryptocurrencies were investment contracts under the Securities Act, as illustrated by the amicus brief filed by multiple states in Lejlex v. SEC. Letter from Brenna Bird, Attorney General of Iowa, et al. to SEC Commissioner Hester Pierce (Oct. 20, 2025). The brief emphasized the importance of preserving state authority for consumer protection in digital asset regulations. Brief of Amici Curiae Iowa et al., Lejilex v. SEC, No. 4:24-cv-00168-O (N.D. Tex. July 10, 2024); see also Kentucky v. SEC, No. 3:24-cv-00069 (E.D. Ky. Nov. 14, 2024).
As of 2025, at least 40 states have introduced or passed legislation concerning digital assets. See Bird Letter, supra. For example, Utah created a “Blockchain and Digital Innovation Task Force” comprised of several government officials and experts in cryptocurrencies to develop legislation. Utah Code Ann. § 36-29-110. The New York State Department of Financial Services (NYDFS) created a licensing regime for digital asset firms operating in New York, known as the BitLicense, which imposes regulatory requirements for businesses involved in digital assets, including both intermediaries and custodians. Virtual Currency Business Licensing, N.Y. State Dep’t of Fin. Servs. Wyoming created a regime for “special purpose depository institutions” that sets standards for digital asset custodians. Wyo. Div. of Banking, Special Purpose Depository Institutions. California enacted a digital asset-specific regime that takes effect in July 2026, and that prohibits an entity from engaging in digital asset business activity unless the entity holds a license from the state’s Department of Financial Protection & Innovation. Cal. Fin. Code §§ 3101-3907.
Many states’ money-transmitter laws extend to digital asset custodians and trading platforms. These laws generally mandate that such intermediaries register as money transmitters with the state in order to provide services to customers within that state. See, e.g., Ala. Code § 8-7A-2; Fla. Stat. §560.204; Ga. Code § 7-1-680(30); see also United States v. Harmon, 474 F. Supp. 3d 76 (D.D.C. 2020); State v. Espinoza, 264 So. 3d 1055 (Fla. Dist. Ct. App. 2019). Some states’ statutes, including those in Alabama, Georgia, Florida, and D.C., define money transmission to include virtual currencies. An October 25, 2025, letter from 21 State Attorney Generals to SEC Commissioner Pierce urged the SEC to not take actions that would preempt these money-transmitter laws. Bird Letter, supra, at 5. According to the letter, state money transmitter laws “ensure that transmitters maintain financial stability, conduct thorough customer due diligence, and report suspicious activities, thereby mitigating risks like money laundering and consumer exploitation in digital asset transfers.” The letter argues that without state-level safeguards, consumers will be vulnerable to scams and financial losses.
Some states have attempted to regulate digital assets under state blue-sky laws. For example, the Oregon Attorney General sued Coinbase for “creat[ing] and operat[ing] an exchange for the purchase and sale of crypto assets,” and thus allegedly engaging in “the sale of unregistered securities” under Oregon’s blue-sky law. Oregon v. Coinbase, Inc., No. 3:25-cv-00952 (D. Or. June 2, 2025). In addition, the New York Attorney General has taken the position that transactions in assets based on decentralized protocols like Ether (“ETH”)—the native asset of Ethereum, one of the most-used blockchains in the world—constitute securities under New York’s blue-sky law. People v. KuCoin, No. 450703/2023 (N.Y. Sup. Ct. Mar. 9, 2023).
If digital commodities are to be treated as “covered securities” under the Securities Act—as the CLARITY Act proposes—states should still theoretically be able to bring enforcement actions for fraudulent practices, which are not preempted by the Securities Act. Bird Letter, supra, at 6. Some states are concerned, however, that criminal laws that do not involve fraud or deceit, such as theft, would be preempted. There is also concern that state unfair or deceptive acts or practices statutes could potentially found to be preempted for the same reasons. Id.