US Treasury Abandons Controversial Crypto Wallet and Mixing Surveillance Rules

The US Treasury has dropped proposed crypto surveillance rules targeting unhosted wallets and convertible virtual currency (CVC) mixing services. The withdrawal, announced through the Financial Crimes Enforcement Network (FinCEN), scraps two controversial notices of proposed rulemaking (NPRMs) from the Trump Administration.

The first NPRM, introduced in 2020, aimed to extend Bank Secrecy Act obligations to banks and money services businesses (MSBs) dealing with unhosted wallets, where users control their private keys. It proposed recordkeeping and customer verification for transactions above $3,000 and mandatory reporting for those above $10,000. The rule was formally withdrawn on April 12, 2024.

The second proposal, published in October 2023, targeted CVC mixing services, which obscure transaction trails by pooling and shuffling crypto. This rule was never finalized. Both proposals avoided naming specific cryptocurrencies or protocols, instead focusing on transaction categories.

The unhosted wallet proposal faced intense backlash, drawing over 7,500 public comments. Critics argued it was unfeasible, costly, and invasive, as banks and MSBs would struggle to verify anonymous wallet owners. The withdrawal reduces compliance pressure on centralized exchanges and financial institutions, easing transactions between regulated businesses and self-custody wallets.

Industry advocates view the decision as a positive shift, potentially boosting decentralized finance (DeFi) and encouraging more crypto adoption. However, existing Bank Secrecy Act obligations for regulated businesses remain unchanged.