Legal Crypto In South Dakota

Overview of Cryptocurrency Legality and Regulation in South Dakota

Legality of Cryptocurrency

South Dakota recognizes cryptocurrencies like Bitcoin and Ethereum as virtual currencies. Individuals and businesses are not prohibited from using, owning, or trading them at the state level in any state except New York. No South Dakota has not passed specific legislation designed to clarify cryptocurrencies as currency, property, or differentiated biglaobalnetassets classAndFeel indeblaobalnetassets definition. But they are not explicitly legal, and proposed legislation like House Bill 1091 is pending in the state legislature, which would fix their legal status.

South Dakota’s Blockchain-Friendly Initiatives

South Dakota: As a host state of forward looking blockchain-related initiatives such as the South Dakota Blockchain Task Force, which was tasked to study blockchain technology as utilized by state procedures, including public records and the state’s money. They have created this task force in the hopes of finding creative ways blockchain can make public records better, more efficient and more transparent in a move that could help expand acceptance of cryptocurrency at broader state level applications. This forward-thinking sets South Dakota apart from many other states where there is not a blockchain-specific state government task force.

Legislation for the Crypto Space

South Dakota South Dakota applies its money transmitter laws to virtual currencies, found in the South Dakota Codified Laws Title 51A, and has not enacted the Uniform Regulation of Virtual-Currency Businesses Act (URVCBA), relying on its own bespoke virtual currency regulation.

Key Laws Regulating Cryptocurrency in South Dakota

Law/Regulation	Description	Authority	Status
SDCL Title 51A (Money Transmission)	Requires businesses transmitting virtual currencies to obtain a license and hold equivalent customer assets.	South Dakota Division of Banking	Active
House Bill 1091	Proposed legislation to clarify legal status, property rights, and taxation of cryptocurrencies.	South Dakota Legislature	Under consideration
Bank Secrecy Act (Federal)	Classifies cryptocurrency businesses as MSBs, mandating AML and KYC compliance.	FinCEN	Active
IRS Tax Rules (Federal)	Classifies cryptocurrencies as property, subject to capital gains tax.	Internal Revenue Service	Active

Popular Cryptocurrency Exchanges and Methods

In South Dakota you can buy and sell cryptocurrencies on the regulated exchanges such as Coinbase, and Kraken or Binance large centralized exchanges. US, and Gemini, all of which were registered as MSBs by FinCEN. Decentralized exchanges (DEXs) such as Uniswap and PancakeSwap are available, but these are largely unregulated and carry greater risk. Direct trades are also available on peer-to-peer (P2P) marketplaces such as LocalBitcoins and Paxful, being wary of scammers! ATMs of the cryptocurrencies exist in certain cities, providing cash-to-crypto options, although many have higher fees and KYC for larger transactions. Non-custodial wallet such as MetaMask allow trading through DEXs or DeFi protocols.

The DeFi (Decentralized Finance) Market

The DeFi market, that consists of protocols for lending, borrowing, and trading without intermediaries, is open for South Dakota residents, however, there is no state-level regulation. Platforms such as Aave, Compound, and MakerDAO exist on networks such as Ethereum, and are also regulated by the federal government. DeFi protocols could be subject to securities or commodities laws, and both the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have signaled an intent to enforce against unregistered securities or derivatives. These risks include smart contract flaws, liquidity risks, and consumer protection voids. Natives here get involved in DeFi through non-custodial wallets such as MetaMask or Trust Wallet, and decentralized applications (dApps).

Market for Non-Fungible Tokens (NFT)

The NFT market, which encompasses unique digital assets including art and collectibles, is active in South Dakota but not specifically regulated at the state level. Federal regulators consider NFTs to be crypto-assets. Residents are able to explore NFT marketplaces such as OpenSea, Rarible and Foundation. N.F.T.S. can also be subject to securities laws if the assets are being promoted as investments, and the I.R.S. considers N.F.T.S. to be collectibles, which may be subject to higher capital gains tax rates. The NFT market, the Treasury Department has pointed out, contains speculative risks. We just need the books to cover other virtual assets, such as NFTs, if and when House Bill 1091 becomes a law.

Useful Information

• Cryptocurrencies are allowed in South Dakota and nothing has been approved, considering that the state doesn’t have any state laws which ban individuals from using, carrying or trading with digital currencies.
• Businesses that provide for transmission of virtual currencies are required to obtain a money transmitter license from the South Dakota Division of Banking.
• Licensees are also required to maintain similar levels of customer assets and are subject to a similar insurance bonding for consumer protection reasons.
• South Dakota does not have a state income tax; federal capital gains taxes apply to cryptocurrencies as property.
• House Bill 1091, if approved, would explain regulations for cryptos, DeFi and NFTs.
• Some well known centralized exchanges are Coinbase, Kraken, Binance. US, and Gemini; Uniswap is the primary DEX.
• Federal regulatory risks Aave and Compound decentralized finance platforms are accessible via non-custodial wallets.
• There are NFT marketplaces such as OpenSea and Rarible, and NFTs are viewed as collectibles for tax purposes.
• Among the risks: smart contract bugs with DeFi, and speculative bubbles in NFTs.

Conclusion

South Dakota takes a relatively hands off approach to cryptocurrencies and doesn’t have a separate regulatory regime, such as that for Virtual Currency Businesses, or a licensing requirement. The state has shown reluctance to regulate the use and trade of cryptocurrency but has said it would have no problem with someone conducting Bitcoin business locally, so long as it doesn’t involve transmitting money short of taking deposits and making loans (SDCL Title 51A). It has proposed House Bill 1091 which would clarify the language in the books even further. There is no state income tax, and tax obligations are relatively simple (there are federal capital gains tax). Citizens are able to access major on and off ramps and decentralized and DeFi and NFT ecosystems, that are largely subject to federal regulation. Companies need to comply with licensing, AML and KYC obligations and people should be mindful of the risks associated with unregulated DeFi and NFT industries. With the changing face of crypotcurrency, Soth Dakota is likely to amend their regulations to better accommodate new virtual asset technologies.