• The U.S. Treasury has withdrawn two proposed rules targeting unhosted crypto wallets and cryptocurrency mixing, formally ending the rulemakings.
  • The withdrawal removes the threat of new reporting requirements for transactions over $3,000 and $10,000 involving self-hosted wallets, and a separate reporting regime for crypto mixers.
  • Existing anti-money laundering, sanctions, and suspicious activity reporting obligations remain in place, but the move signals a shift toward more targeted enforcement.

A Win for Crypto Privacy Advocates

The U.S. Treasury has quietly withdrawn two long-pending proposals that would have imposed sweeping surveillance requirements on cryptocurrency transactions. The first, a December 2020 FinCEN proposal, sought to require banks and money services businesses to collect and verify customer information for certain transfers involving self-hosted wallets—transactions exceeding $3,000 would have triggered recordkeeping and identity verification, while those over $10,000 would have been reported to the agency. The second, an October 2023 proposal, aimed to treat international crypto mixing transactions as a class of "primary money laundering concern" under the USA PATRIOT Act, mandating that financial institutions collect and report data on suspected mixer activity.

Both proposals have now been formally withdrawn, according to filings, ending a contentious chapter in U.S. crypto regulation. The move was first reported by Bloomberg.

The withdrawal brings immediate relief to crypto exchanges, banks, and self-custody wallet users who would have faced significant compliance burdens. "This is a clear victory for financial privacy and innovation," said a spokesperson for the Digital Chamber, an industry group that had fiercely opposed the wallet rule. "These proposals were unworkable and would have driven activity offshore."

The Road to Withdrawal

The unhosted wallet rule, introduced in the waning days of the Trump administration, immediately drew backlash from civil liberties groups and the crypto industry, who argued it was technically infeasible and would stifle peer-to-peer transactions. The proposal languished for years, with Treasury officially marking it as withdrawn in April 2024. The mixer rule, proposed in response to concerns over illicit finance facilitated by services like Tornado Cash, also faced intense pushback. Critics argued its definition of "mixing" was overly broad and could capture legitimate privacy tools. The proposal received 2,239 comments, underscoring its contested nature.

Notably, the withdrawal of the mixer rule does not affect sanctions against specific mixers, such as Tornado Cash, nor does it legalize illicit activity. "Treasury remains committed to combating illicit finance in the digital asset ecosystem," an agency spokesperson said in a statement. "We will continue to use targeted tools to address risks."

The timing of the withdrawals coincides with a broader policy shift. FinCEN and OFAC recently issued a proposed rule to enhance AML/CFT standards for payment stablecoin issuers under the GENIUS Act, indicating a pivot toward regulating intermediaries rather than broad transaction categories. "The regulatory focus is moving from blanket surveillance to more risk-based, issuer-level oversight," said a former Treasury official.

Mixed Reactions

While privacy advocates celebrate, law enforcement groups warn that the loss of reporting channels could hinder investigations into ransomware, sanctions evasion, and terrorist financing. "Mixers and self-hosted wallets are increasingly used by bad actors," said a senior official at the National Security Council. "Without these rules, we lose visibility."

Still, the practical impact may be limited. Banks and crypto firms must continue to comply with existing Bank Secrecy Act requirements, including suspicious activity reporting and sanctions screening. "The withdrawal doesn't mean a free pass," said a compliance officer at a major exchange. "We still have robust AML programs in place."

Market participants are now watching for Treasury's next move. The agency's 2026 illicit finance assessment highlighted mixers, stablecoins, and ransomware as top concerns, suggesting that enforcement will continue through case-by-case actions and sanctions rather than broad rulemaking. "This is a change in method, not a retreat," said a policy analyst at a Washington think tank.

For now, the crypto industry is breathing a sigh of relief. "We can focus on building rather than fighting regulatory overreach," said the CEO of a wallet software startup. "This gives us room to innovate."

Correction: An earlier version of this article incorrectly stated that the withdrawal of the mixer rule also lifted sanctions on Tornado Cash. Sanctions remain in place.