Treasury Withdraws Crypto Mixing and Unhosted Wallet Regulations

The U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) has withdrawn two regulatory proposals targeting cryptocurrency mixers and unhosted wallets, citing concerns over a potential chilling effect on legitimate financial activity. The first proposal, introduced in October 2023, aimed to designate transactions involving international crypto mixers as a primary money laundering concern. FinCEN noted that implementing this rule could have burdened financial institutions with excessive reporting requirements and failed to distinguish between lawful and illicit transactions.

Simultaneously, FinCEN rescinded a 2020 draft rule that would have required identity verification for transactions involving self-custodial wallets exceeding $3,000. This rule, introduced during the Trump administration, also mandated reporting for transactions over $10,000. The Treasury acknowledged that privacy-enhancing protocols serve legitimate purposes for protecting data on public blockchains, further justifying the withdrawal.

The digital asset industry had consistently opposed both proposals. Coinbase, for instance, argued that the absence of a minimum monetary threshold in the mixing proposal would force financial institutions to report routine transactions by regular users. Industry associations also highlighted the unequal treatment of personal wallets compared to traditional cash transactions.

The rescission of these draft rules leaves existing compliance requirements unchanged. Cryptocurrency exchanges must still enforce know-your-customer controls, monitor suspicious transactions, and comply with sanctions lists issued by the Office of Foreign Assets Control (OFAC). The formal publication of the withdrawal notices in the U.S. Federal Register will conclude the administrative proceedings in the coming days.