Integration of Cryptocurrency and the Stock Market

elenaburan
Jun 17
6 min read

The U.S. Experience with Regulation and Crypto-Backed Stock Purchases

United States: Paying for Stocks with Cryptocurrency and Regulatory Considerations

In the United States, cryptocurrency is not officially recognized as legal tender, but its ownership and use are not prohibited. Legally, cryptocurrency is classified as property — for example, the Internal Revenue Service (IRS) clarified back in 2014 that general rules for taxing property apply to virtual currency transactions (irs.gov).

This means that if an investor uses crypto to purchase securities, it is treated as a barter transaction — exchanging one asset for another — and is subject to capital gains tax. Essentially, the crypto is “sold,” and the proceeds are then used to buy the stocks.

There are no federal laws explicitly banning the use of cryptocurrency to pay for stocks, but practically all securities transactions in U.S. markets are denominated in fiat currency (USD). Therefore, brokers typically require the conversion of crypto assets into dollars before allowing stock purchases.

Still, regulators are keeping a close watch. The U.S. Securities and Exchange Commission (SEC) and FINRA impose strict AML (Anti-Money Laundering) and KYC (Know Your Customer) compliance requirements on brokers working with crypto assets. Crypto custody by brokerage firms is also subject to capital adequacy and custodian rules (sec.gov).

In practice, there is no widespread system in the U.S. that allows users to buy stocks directly with crypto — the process is still mostly indirect through crypto-to-USD conversion.

Platforms and Brokers Enabling Crypto-Backed Investing

Some fintech firms have started integrating crypto into their investment ecosystems. A few allow users to fund investment accounts with crypto or use it as collateral:

eToro – A global broker regulated in the UK (FCA) and the EU (CySEC), offering access to stocks, forex, and crypto assets. According to fintech reviews, eToro accepts Tether (USDT) deposits, which can be used to trade various instruments, including stocks. Note: U.S. users may have limited functionality compared to other jurisdictions.
Interactive Brokers (IBKR) – One of the largest U.S. brokers, which partnered with Paxos in 2021 to allow clients to buy and hold Bitcoin, Ethereum, and others in their accounts. Although crypto deposits are not directly enabled, crypto assets can be held within the IB ecosystem. Reports suggest IBKR is exploring the use of crypto as collateral for margin loans, with proper risk adjustments.
Revolut and Uphold – Fintech platforms offering crypto wallets and stock trading. Users can convert crypto to fiat within the app and buy stocks or ETFs. For example, Revolut allows users to hold BTC/ETH in their account and instantly convert to USD or EUR to purchase stocks — removing the need for a traditional bank withdrawal before investing.

Tokenized Stocks: A New Gateway

Crypto exchanges have also started offering tokenized stocks — special tokens tied to the value of real-world shares. These allow 24/7 fractional stock purchases with crypto:

Bittrex Global (Bermuda) launched tokenized stock trading in 2020, offering exposure to shares of Tesla, Amazon, Pfizer, and others. These token contracts were backed by actual stocks held by a custodian, giving users an economic equivalent of ownership. Payment could be made via
Bitcoin, USDT, or fiat.
The key benefit: investors could buy just $100 worth of Amazon stock, trade on weekends, and enjoy instant blockchain settlement. Bittrex noted that tokenized stocks lower barriers to entry and make equity markets more accessible globally.

⚠️ However, in the United States, these tokenized instruments were not approved by regulators, and were restricted for non-U.S. residents only. American investors would need to be accredited or use offshore platforms at their own risk.

Crypto-Backed Loans and Margin Accounts

The U.S. has also seen growth in crypto lending, where investors obtain fiat loans backed by their crypto holdings. This enables investors to access cash without liquidating their assets, and use that cash to invest in stocks or bonds.

Several firms offered such services until recently:

BlockFi (before its 2022 collapse) provided dollar loans against BTC/ETH collateral with appropriate safety margins.
Some banks began accepting crypto as collateral for credit lines from high-net-worth clients.

These transactions are treated as secured loans and account for crypto volatility. Typically, the loan is capped at 50% of the collateral value, and if the price drops, borrowers must top up the collateral — or face forced liquidation.

Despite risks, crypto is increasingly acknowledged as an asset that can provide access to traditional finance.

Investor Access and Regulatory Status

There are no explicit bans on using cryptocurrency for investment by retail investors, as long as they use licensed platforms and report taxes correctly.

Any individual can sell their crypto and use the proceeds to buy stocks — no special status required.

Accredited investor status is only necessary when accessing private offerings of tokenized securities or funds. Public market investments don’t require it.

Thus, all investors in the U.S. can, in principle, invest in stocks with the help of crypto — though it usually means converting crypto to USD first via a broker.

Some innovative platforms simplify this by integrating crypto wallets directly into the investment process — but still require KYC and compliance procedures.

China: Cryptocurrency Is Banned — Buying Stocks with Crypto Is Not Legal

China enforces some of the strictest cryptocurrency regulations in the world. Since 2021, the People’s Bank of China (PBoC) has officially banned all cryptocurrency-related transactions — including mining, trading, payments, and any intermediary services.

🟥 [FACT] As of September 2021, all crypto transactions in mainland China are considered illegal — this includes trading, exchanging, and using crypto as a payment method. (Source: PBoC, gov.cn)

⚠️ This means:

Buying stocks on Chinese exchanges using cryptocurrency is not possible.
Platforms and brokers in China are prohibited from accepting or processing crypto in any form — including stablecoins like USDT or USDC.
Only the Chinese yuan (CNY) is accepted for transactions on regulated stock exchanges like the Shanghai Stock Exchange (SSE) or Shenzhen Stock Exchange (SZSE).

Workarounds? Risky and unofficial

While official use is banned, some investors resort to grey-market solutions:

Purchasing crypto through over-the-counter (OTC) channels using Alipay or WeChat Pay
Transferring crypto to offshore exchanges or wallets
Converting back to fiat in jurisdictions with more lenient regulations

However, these workarounds carry significant legal risks:

China maintains strict capital controls, limiting the legal outbound transfer of funds to $50,000 per person per year.
Violating these rules can lead to fines, blocked accounts, or criminal penalties.

🟡 [NOT CONFIRMED] In 2022, Reuters reported a case of a Shanghai-based investor who allegedly moved 1 million yuan into Bitcoin and earned a 45% return — while domestic stocks were declining. The transaction was done via OTC brokers and remains legally ambiguous.

What about Hong Kong?

🟢 [FACT] Since 2023, Hong Kong has launched a licensing regime for crypto exchanges, allowing retail investors to trade Bitcoin and Ethereum. However, crypto still cannot be used to directly purchase stocks, even in Hong Kong.

Summary:

✅ Mainland China — Crypto is completely banned, including for stock purchases
🟡 OTC methods — Exist but are risky and legally grey
🟢 Hong Kong — Crypto trading is legal (with license), but not integrated into stock exchanges

UAE: A Progressive Hub — But Stocks and Crypto Are Still Separate

The UAE — especially Dubai and Abu Dhabi — has positioned itself as a crypto-friendly innovation hub. The government has established dedicated regulatory bodies and free zones that support blockchain and digital asset companies.

🟢 [FACT] In 2022, Dubai created VARA (Virtual Assets Regulatory Authority), the world’s first independent regulator for digital assets.🟢 [FACT] Abu Dhabi has a similar body: ADGM’s FSRA (Financial Services Regulatory Authority).

✅ What’s allowed?

Licensed crypto exchanges (like Binance, Kraken, BitOasis) can operate legally under local frameworks
Crypto is considered a legal investment asset, not legal tender
Retail and institutional investors can hold and trade crypto freely through approved channels
UAE residents can open crypto accounts, wallets, and convert to AED or USD

What’s not allowed?

Despite the innovation, buying stocks directly with crypto is not supported on the main UAE exchanges, such as:

Dubai Financial Market (DFM)
Abu Dhabi Securities Exchange (ADX)

These platforms only accept fiat (AED). Even licensed international brokers operating in the UAE require AED or USD deposits — not Bitcoin or Ethereum.

Are there workarounds?

Yes, indirect methods are growing:

Some fintech platforms registered in free zones allow crypto to be used for collateral or converted internally to buy financial products
Digital banks (e.g., Zand, Rain) offer crypto services that can connect to investment accounts
Overseas brokerages (like eToro, Interactive Brokers) may allow UAE residents to fund accounts with stablecoins and trade global stocks

But again — this is indirect. You're converting crypto to fiat first.

Any examples of success?

🟢 [FACT] In 2023, Komainu, a crypto custodian backed by Nomura and Ledger, received a full license from Dubai’s VARA.

🟢 [FACT] UAE-based Venom Foundation is building tokenized investment tools with compliance baked in — potentially paving the way for stock-like asset exposure via crypto.

While the infrastructure is promising, stock trading with crypto remains separated — for now.