Treasury drops crypto mixing and wallet rules over concerns of chilling legitimate activity
The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) has withdrawn its 2023 proposal targeting crypto mixing, citing concerns that the rule could stifle legitimate financial activity. The notice, signed by FinCEN Deputy Director Jimmy L. Kirby, is set for formal publication on Tuesday. FinCEN also withdrew a 2020 proposal that would have required banks to verify the identities of users of self-hosted wallets. Neither proposal was finalized, so the withdrawals do not alter existing obligations for financial institutions.
The 2023 proposal aimed to classify international crypto mixing as a primary money laundering concern and required banks to file detailed reports on mixing transactions. FinCEN defined mixing as any method that obscures transaction details, such as pooling funds or using single-use wallets. The withdrawal came after comments raised concerns that the broad definition could burden financial institutions and chill legitimate crypto use. FinCEN acknowledged that mixers have legitimate privacy uses but will continue monitoring their activity.
The 2020 proposal would have mandated identity verification and record-keeping for transactions involving unhosted wallets or wallets at foreign institutions above a certain threshold. FinCEN cited the July 2025 report from the President's Working Group on Digital Asset Markets in explaining its decision to withdraw the proposal. Coin Center, a crypto advocacy group, praised the move, arguing that the mixing definition was overly broad and the wallet rule would have created an unfair standard for crypto transactions.
In related news, the Treasury had previously removed Ethereum-based mixer Tornado Cash from its sanctions list in March 2025 following a court ruling. The agency also recently acknowledged the legitimate privacy uses of mixers in a report to Congress. Treasury declined to comment on the record to The Block regarding the withdrawals.