On January 14, 2026, at a speech at New York Law School, Manhattan District Attorney Alvin Bragg sent a strong signal by publicly calling for the classification of unlicensed cryptocurrency operations as a criminal offense, accompanied by a more stringent licensing system and strict KYC requirements. According to A/C data, approximately $51 billion of criminal economy is operating by exploiting loopholes in the existing regulatory framework, and 18 states across the U.S. have already chosen to criminalize unlicensed cryptocurrency operations to close this gap. In this context, the tension between financial innovation freedom and crime fighting has been brought to the forefront once again. If New York ultimately enacts legislation, it is likely to become the 19th state in the U.S. to write unlicensed cryptocurrency operations into criminal law, pushing this game, originally limited to the realm of "compliance obligations," towards a more confrontational "criminal red line."

$51 Billion Gray Transactions Prompt New Red Line in New York

According to estimates disclosed by A/C, there is currently about $51 billion of crime-related funds circulating at the edges of the U.S. financial system, a significant portion of which is being concealed and transferred through cryptocurrency operations in regulatory blind spots. Bragg emphasized that the current framework, primarily based on administrative regulation and compliance review, has become inadequate to effectively address these interstate, cross-border, and de-identified capital flows. The path he proposed for criminalization is essentially elevating this gray area from "administrative violations" to the level of "criminal law intervention." After announcing that "cryptocurrency crime" would be a priority for his second term, this initiative has been viewed externally as a highly symbolic political statement: in a financial center like New York, the rule of law logic of traditional finance is to be more directly transplanted into the cryptocurrency world. With 18 states already having taken the lead in criminalizing unlicensed cryptocurrency operations, New York's potential follow-up is not merely a policy adjustment for one state and city, but rather a symbolic action that connects the past and the future. On one hand, it will be seen as an endorsement of existing state law trends, reinforcing the regulatory signal that "no license means guilty"; on the other hand, if New York officially becomes the 19th state, its status as the core of the national financial and capital markets will inevitably create a demonstration effect at the level of other major financial states and even federal legislation, making "whether to follow suit with criminalization" a must-answer question in the regulatory game for the coming years.

Cryptocurrency ATMs as a Hidden Gateway for Money Laundering

In this speech, Bragg chose to address a seemingly marginal yet increasingly glaring entry point in real-world law enforcement—cryptocurrency ATMs. He stated, "Unlicensed cryptocurrency ATMs have become a breeding ground for money laundering and organized crime" (according to A/C), identifying this offline device as a key link in the cryptocurrency crime ecosystem. Compared to centralized exchanges or licensed payment institutions, cryptocurrency ATMs have particularly prominent weaknesses in KYC and source of funds verification: many operating entities have ambiguous qualifications, identity verification is merely formal, and high-frequency, small-amount, fragmented conversions between cash and on-chain assets can create hidden funding channels outside traditional banking monitoring systems. It is precisely this combination of "offline cash + simplified identity verification + instant on-chain" that has repeatedly led cryptocurrency ATMs to be identified as a key link in money laundering chains in law enforcement samples from multiple states. Proponents of strengthened legislation further amplify the social harm of this entry point through narratives of elderly individuals being scammed; according to C's quotes, "Cryptocurrency scams are devouring the life savings of ordinary investors," with many cited cases pointing to elderly groups with limited understanding of financial tools, who, under the guidance of unfamiliar calls or fake customer service, end up pouring boxes of cash into seemingly legitimate machine interfaces. However, it is important to emphasize that publicly available information has not provided specific amounts, number of victims, or other details of these cases, nor has it fully disclosed case materials, meaning they can currently only serve as a qualitative background—revealing risk scenarios and vulnerable populations, rather than providing a basis for quantifiable legislative effects.

Hammer Down or Leave Space? The Tension Between Regulation and Innovation

If New York's previous attitude towards cryptocurrency operations remained at the level of licensing systems and compliance guidelines, then Bragg's push this time represents a clear leap in hierarchy: from "operating without a license is a violation" to "operating without a license may lead to imprisonment." Mandatory licensing and strict KYC are no longer just compliance obligations for project parties and operators, but are being written into a clear risk boundary within the criminal justice system. For small and medium-sized cryptocurrency startups and offline ATM operators, this change means a significant increase in entry barriers—compliance costs are not just a few more rounds of audits or filling out more forms, but must also reserve space to address criminal liability from the outset of their business models. This pressure is likely to inadvertently push a considerable number of resource-limited teams, which are trying to explore new models in gray areas, out of the market, leaving behind large financial and technology institutions capable of bearing high legal and compliance costs. In this process, some Republicans and libertarians, represented by Senator Lummis, may hold reservations about the pace of "harsh criminalization" at the state level. For them, prematurely strengthening criminal deterrence may not only freeze immature innovative explorations but also further intensify the tug-of-war between federal and state jurisdictions over regulatory authority for digital assets. Thus, the value conflict between financial innovation freedom and crime fighting is condensed into the choice of "hammer down or leave space." Proponents of a heavy-handed approach emphasize that without sufficient criminal deterrence, regulatory arbitrage will emerge endlessly, and criminal funds will always find new sanctuaries between different states; while those wary of excessive deterrence worry that if potential violators are "scared off" solely through prison terms and felony labels, it may ultimately sacrifice those innovative attempts that could grow into the next generation of financial infrastructure within a compliant framework.

State Law Race: Will New York Lead America Astray?

Before New York proposed this idea, according to A/C information, 18 states across the U.S. had already chosen to address regulatory gaps by criminalizing unlicensed cryptocurrency operations, but publicly available data has not provided quantitative effectiveness data regarding case resolution rates or declines in fraud after implementation in these states, nor is there a unified assessment report. In such a context where effectiveness is still difficult to systematically verify, New York, as the national financial center, would further amplify the symbolic significance if it adopts a similar path of criminalization. For legislative bodies in other states, New York's alignment would constitute a strong reference signal: one path is to accelerate follow-up, demonstrating political determination to combat financial crime by aligning with New York; the other is to deliberately maintain differentiation, attracting businesses and project parties excluded by high barriers through a more lenient administrative regulatory framework, forming a kind of "interstate policy differentiation." This differentiation directly gives rise to "interstate migration" and licensing arbitrage paths for businesses and project parties—states with higher compliance costs and clearer criminal risks may be seen as unfavorable judicial jurisdictions for light-asset entrepreneurship, while states with relatively mild regulation may attract cryptocurrency service providers to relocate their licenses and operational centers in the short term. In the long run, this race and misalignment at the state law level will continuously amplify the pressure for a unified national regulatory framework: without federal intervention and integration, it will be difficult to prevent funds from circulating between different states, completing a new round of regulatory arbitrage by leveraging rule differences. It should be noted that at this stage, external information has not provided empirical data on the specific regulatory achievements of other states or the next steps of the federal government; what we can do is cautiously project the direction of this state law race based on known political signals and existing legislative trajectories, rather than providing definitive conclusions.

Where Do Ordinary Investors Stand?

Behind all the technical and institutional debates, the ordinary investor, especially the elderly population, is frequently cited as an example. Proponents of criminalization encapsulate their stance with a striking statement: "Cryptocurrency scams are devouring the life savings of ordinary investors" (according to C). In their view, mandatory licensing and strict KYC are not just institutional constraints targeting businesses, but also provide a layer of "pre-filtering" for those with insufficient financial knowledge and weak risk identification abilities, at least excluding some obviously suspicious, unlicensed operational channels from public view. For many criminal models that rely on telemarketing, offline demonstrations, and ATM guidance to complete scams, once unlicensed operations themselves are included within the scope of criminal risk, scam groups will face not only platform delisting and account freezing but also more direct criminal accountability deterrence. However, from a broader user perspective, stricter KYC and clearer criminal red lines are not without cost. They will objectively raise the entry barriers for users, causing small participants to hesitate in the face of cumbersome identity verification and strict source proof, and some scenarios that rely on anonymity and speed for daily payments and cross-border remittances may also be squeezed out. This exclusion effect is particularly evident among privacy-sensitive groups, potentially pushing them towards underground channels with weaker regulation and inadequate risk control. For this reason, using criminal law as the sole or core tool is not sufficient to form a complete solution. User education, risk warnings, transparent disclosure of project information, and the upgrading of industry self-regulatory standards could provide more intermediate buffers between deterring crime and protecting innovation. They may not replace the path of criminalization, but at least can stand alongside "harsh criminalization," providing ordinary investors with an additional safe corridor, rather than leaving all issues to the police and judges.

When Manhattan Raises the Hammer

If New York ultimately chooses to formally write unlicensed cryptocurrency operations into criminal law as an independent form of crime, the symbolic significance of this step is that the "marginally compliant gray area" that the cryptocurrency industry has navigated for years will be brought into the direct view of criminal law for the first time within the judicial jurisdiction of the U.S. financial center. For practitioners accustomed to finding space between licenses and exemptions, the future game will no longer be just about regulatory coordination and fine negotiations, but will require facing clearer and more rigid criminal red lines. On a more macro level, the tug-of-war between regulation and innovation will not end with a single statement from New York; on the contrary, it is likely to intensify among states and federal levels, across multiple parties and state law models. Questions about who should regulate cryptocurrency operations, by what means, and to what extent criminal liability should be borne remain highly uncertain. In the short term, it is foreseeable that project parties and trading service providers will need to proactively focus on the legislative processes in New York and other major states, assessing in advance whether their business models and licensing arrangements are compatible with potential paths of criminalization, and making defensive adjustments in organizational structure, compliance budgets, and regional operational plans. The more challenging question is whether the cryptocurrency industry can proactively provide a feasible self-restraint plan without compromising its innovative vitality—a plan that can address the social anxiety surrounding the "$51 billion gray funds" and losses of elderly investors, without compressing the entire ecosystem into the hands of a few giants. If the industry cannot present a sufficiently persuasive answer to this question, then when Manhattan raises the hammer, the next thing that may fall could be not just unlicensed ATMs, but the broader cryptocurrency business itself.

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