In early 2018, I wrote an article called Bitcoin and Your Clearance: A Legal Perspective. At the time, cryptocurrencies were still a relatively new phenomenon (at least as far as most of the public was concerned) and the perception in the national security community was that they were the purview of cyber-criminals, tax cheats, and fraudsters.
Suffice it to say, not everyone was happy with my recommendation that clearance holders steer clear of crypto – at least until and unless official guidance was issued to the contrary by personnel security officials. The article generated a few gruff comments, including my personal favorite: “you old folks have a lot to learn.” (I’m still on the right side of 40).
In the five years since, I’ve often been asked whether I’ve changed my views on crypto for clearance holders. In a word, yes – although the recent FTX debacle has certainly made it a closer call. But I stand by my original recommendation as prudent at the time, and I’d note that things have changed considerably since then.
First, and perhaps most importantly, crypto has exploded from a fringe fad into a mainstream investment. That’s not to say that just because something is popular, it’s an acceptable security risk to the government. But the normalization of anything removes much of its mystique and inevitably results in a certain degree of acceptance. People fear what they don’t understand, and security officials are no different.
Second, the DoD, which is the largest issuer of security clearances in the federal government and generally sets the trend for other agencies, issued formal written guidance on crypto in 2021. You can read it here, but the gist is that clearance holders are required to self-report to security “[o]wnership of foreign state-backed, hosted, or managed cryptocurrency and ownership of cryptocurrency wallets hosted by foreign exchanges.”[1] It is the unspoken part of this that’s really important, though. DoD has issued a de facto seal of approval on clearance holders owning U.S.-based crypto and not even banned holding crypto outside the country (although that can still become a security issue, and I don’t recommend it).
Finally, the IRS has now issued regulations pertaining to crypto and introduced a reporting requirement on income tax returns. This eliminates much of the earlier concern about a lack of financial transparency and the ability to dodge taxes. True, someone holding crypto can still use it for illegal purposes or evade taxes, but the mere fact that the tax man is now watching more carefully arguably helps keep the average investor on the straight-and-narrow.
In short, I now believe that owning crypto is not the risk for clearance holders it once was. If crypto is your jam, that’s your prerogative – subject to government policy, the law, and any guidance to the contrary from your agency. Just remember that the same rules of reasonableness apply to crypto as to any other investment. Financial problems remain the number one cause for security clearance problems, so I always recommend that clearance holders diversify their investments and maintain a rainy-day fund lest the market crash, the exchange implode like FTX, or an unexpected life event happen. In those scenarios, the stress of financial problems can be compounded considerably by the risk to livelihood that would come with a clearance revocation.
This article is intended as general information only and should not be construed as legal advice. Although the information is believed to be accurate as of the publication date, no guarantee or warranty is offered or implied. Laws and government policies are subject to change, and the information provided herein may not provide a complete or current analysis of the topic or other pertinent considerations. Consult an attorney regarding your specific situation.
[1] No reporting is required if the covered individual holds cryptocurrency, but is NOT aware that any such holdings are backed, hosted, or managed by a foreign state, or that a cryptocurrency wallet is hosted by a foreign exchange.
No reporting is required if the covered individual’s investments in cryptocurrency are held in a widely diversified fund (e.g., index funds), unless the investment instrument is entirely composed of holdings in cryptocurrency that is backed, hosted, or managed by a foreign state.
FAQs
In short, I now believe that owning crypto is not the risk for clearance holders it once was. If crypto is your jam, that's your prerogative – subject to government policy, the law, and any guidance to the contrary from your agency.
Can I own cryptocurrency with a security clearance? ›
The Department of Defense (DoD) now wants to know if you hold cryptocurrency. A person who has a security clearance now has to report some of their cryptocurrency holdings to the Defense Information System for Security (DISS), the DoD's system of record.
Is there such a thing as a crypto clearance? ›
"Top Secret Crypto Clearance" refers to a high-level security clearance granted to individuals, typically within government or military organizations, who require access to classified information related to cryptography (crypto) and cryptographic systems.
What is the new law for crypto? ›
The Infrastructure Investment and Jobs Act, which passed Congress in November of 2021, included a provision amending the Tax Code to require anyone who receives $10,000 or more in cryptocurrency in the course of their trade or business to make a report to the IRS about that transaction.
Can the government freeze my crypto? ›
10 Years of Decentralizing the Future
The secondary legislation approved this week follows the passing of the Economic Crime and Corporate Transparency Act 2023, which gave law enforcement powers to seize and freeze crypto used for crime.
Can FBI trace cryptocurrency? ›
Yes, Bitcoin is traceable. Here's what you need to know: Blockchain transactions are recorded on a public, distributed ledger. This makes all transactions open to the public - and any interested government agency.
Can police track your crypto? ›
While cryptocurrencies provide a certain level of anonymity, transactions are recorded on a public ledger called the blockchain. Law enforcement agencies and forensic experts can use various techniques to analyze the blockchain and trace the flow of funds.
Is Yankee White higher than Top Secret? ›
It is not truly "above" Top Secret, since there is no clearance higher than Top Secret.
What disqualifies you from public trust clearance? ›
A history of deceptive or illegal financial acts like embezzlement, tax evasion, and fraud; Failure to satisfy your debts; and. Financial problems caused by gambling, drug abuse, or alcohol abuse.
What is the crypto tax rule in 2024? ›
Crypto tax reporting and the Infrastructure Investment and Jobs Act. The Infrastructure Investment and Jobs Act, a bipartisan legislation signed into law by President Biden and made effective January 1, 2024, requires brokers in the crypto space to report transactions exceeding $10,000 to the IRS.
Understanding the $10,000 Crypto Reporting Requirement
The regulation requires businesses to report the receipt of cryptocurrency payments of $10,000 or more. This includes not only single transactions, but also multiple related transactions that collectively surpass the $10,000 threshold.
What is the IRS rule on 10000 crypto? ›
A new mandate requires U.S. citizens to report any digital asset transactions worth more than $10,000 within 15 days. Failure to comply with this directive could result in felony charges, marking a stringent step towards cryptocurrency regulation in the United States.
Can the US government shut down crypto? ›
As Bitcoin is decentralised, the network as such cannot be shut down by one government. However, governments have attempted to ban cryptocurrencies before, or at least to restrict their use in their respective jurisdiction.
Can the government see your cryptocurrency? ›
Transactions on blockchains like Bitcoin and Ethereum are publicly visible. That means that the IRS can track crypto transactions simply by matching 'anonymous' transactions to known individuals.
Will government shutdown affect crypto? ›
Impact of a US government shutdown on crypto
4763, the Financial Innovation and Technology for the 21st Century Act, H.R. 4766, the Clarity for Payment Stablecoins Act, and H.R. 1747, the Blockchain Regulatory Certainty Act. If the government shuts down, forward progress on these bills will be stalled.
Do I have to declare my crypto? ›
Depending on what you do and how you get money from cryptoassets, you might need to tell HMRC and pay tax. In some situations, you must tell HMRC about your cryptoasset activities and pay tax by certain deadlines. If you do not do this, HMRC might charge a penalty.
Is buying crypto reported to IRS? ›
You must report income, gain, or loss from all taxable transactions involving virtual currency on your Federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.
Is crypto taxed as a security? ›
The IRS treats crypto as “property,” which means you'll need to report certain crypto transactions on your taxes.
