After six years of regulatory back-and-forth, FinCEN has formally withdrawn two sweeping crypto surveillance proposals: the self-hosted wallet rule inherited from the first Trump administration and the crypto mixing plan opened under Biden. Privacy advocates are calling it a landmark victory.
🔑 Key Takeaways
- FinCEN formally withdraws two proposals: the 2020 self-hosted wallet rule and the 2023 crypto mixing designation
- The proposals targeted transactions above $10,000 and required counterparty data collection
- The July 2025 Presidential Working Group report endorsed private transactions on public blockchains
- Coin Center hailed a “significant win for financial privacy”
- Existing Bank Secrecy Act rules remain in force: KYC, AML, and suspicious activity reporting obligations continue
Trump 1’s Regulatory Push on Self-Hosted Wallets
In December 2020, as Donald Trump prepared to leave the White House, the U.S. Treasury Department, under Secretary Steven Mnuchin, published a proposed rule imposing new reporting and recordkeeping requirements on transactions involving self-hosted wallets — accounts where users control their own private keys without relying on an exchange or financial institution.
On December 23, 2020, FinCEN published the proposal in the Federal Register with a comment period of just fifteen days, expiring on January 4, 2021. The government cited national security concerns tied to the growing use of cryptocurrencies in financial crime.
Under the proposal, banks and money services businesses would have been required to report transactions exceeding $10,000, including multiple transfers totaling that amount within 24 hours. Additional recordkeeping requirements would have applied to transactions above $3,000, including collection of the counterparty’s full name and physical address. The institution would have been required to verify its own client’s identity, though the proposal did not impose the same mandatory verification on the counterparty.
Mnuchin defended the measure, citing money laundering, terrorism financing, and sanctions evasion. The proposal referenced transactions involving wallets linked to North Korea’s Lazarus Group, including at least 17 transfers exceeding $10,000 between U.S. financial institutions and Lazarus-linked wallets during 2017 and 2018.
On January 14, 2021, FinCEN reported reviewing over 7,500 comments and reopened the comment period, granting 15 additional days for reporting provisions and 45 days for other requirements. After Joe Biden took office, the process was extended again with a 60-day window. The administration that had introduced the proposal was no longer in power, and the rule entered a far longer regulatory process.
Coin Center, the Washington-based crypto advocacy group, opposed the timeline but drew a nuanced distinction. In its initial response, the organization acknowledged that applying cash reporting concepts to cryptocurrency would be beneficial — withdrawing $10,000 in digital assets from a platform could be compared to a similar cash withdrawal from a bank. Its main objections concerned the additional counterparty data requirements and the limited time to evaluate how these would work in practice, particularly when the recipient was not a conventional account holder but a software program or unnamed transaction structure. The information platforms would have been required to collect was not always information their clients possessed.
Targeting Crypto Mixers in 2023
The wallet proposal sat dormant throughout the Biden presidency. By the spring 2024 Unified Regulatory Agenda, it was listed under completed actions as withdrawn on April 12, 2024 — more than two years before the official notice. Yet in October 2023, as the wallet proposal was approaching its end on the regulatory agenda, FinCEN had already opened a new proceeding raising many similar concerns.
This time, the government turned its attention to crypto mixing — techniques used to make transaction tracking and fund tracing on a blockchain more difficult. FinCEN sought to leverage authorities under Section 311 of the USA PATRIOT Act to impose additional reporting and recordkeeping requirements on financial institutions processing transactions involving international crypto mixing.
The broad definition of mixing extended well beyond dedicated mixing services. It included techniques such as splitting transfers, moving funds across multiple addresses, and exchanging between different digital assets when these activities were used to obscure transaction details. Critics argued that such a wide definition could lead platforms to treat legitimate transactions as suspicious simply because they were difficult to interpret.
October 2026 Formal Withdrawal
In October 2026, FinCEN filed notices formally withdrawing the 2020 self-hosted wallet rule and the 2023 proposal to designate international crypto mixing as a class of transactions of primary money laundering concern. Both notices, signed by Deputy Director Jimmy L. Kirby, were scheduled for publication in the Federal Register on October 6, 2026.
FinCEN stated the withdrawal was part of ongoing efforts to ensure digital asset regulations are fit for purpose. The notice cited the July 2025 Presidential Working Group on Digital Asset Markets report, which emphasized protecting the right of legitimate users to transact privately with digital assets on public blockchains.
“The Trump administration supports the ability of legitimate digital asset users to transact privately on a public blockchain.”
Presidential Working Group on Digital Asset Markets, July 2025
The report acknowledged that criminals use mixers to launder funds but noted that legitimate users rely on them for financial privacy. It explicitly called on the Treasury to reconsider the rule.
What Changes and What Does Not
The withdrawal represents a significant victory for crypto privacy advocates, but existing Bank Secrecy Act rules remain in force. Platforms like Coinbase must continue to perform Know Your Customer (KYC) identity verification, maintain anti-money laundering (AML) programs, file suspicious activity reports, and conduct Bureau of Foreign Assets Control (OFAC) sanctions checks.
| Criterion | 2020 Rule (Wallets) | 2023 Proposal (Mixing) |
|---|---|---|
| Legal authority | Bank Secrecy Act | Section 311, USA PATRIOT Act |
| Reporting threshold | $10,000 | Transactions involving international mixing |
| Recordkeeping | From $3,000 | Extended obligations |
| Counterparty data | Name and physical address | Not directly applicable |
| Scope | Self-hosted wallets | Broad mixing (splitting, multi-address, exchanges) |
| Timeline | Proposed Dec 2020, withdrawn Oct 2026 | Proposed Oct 2023, withdrawn Oct 2026 |
“The definition of mixing was extraordinarily broad, sweeping up common techniques used by ordinary cryptocurrency users to preserve their privacy.”
Coin Center, statement on FinCEN withdrawals
Coin Center added that because FinCEN had acknowledged the difficulty of determining where a mixing transaction took place, prudent financial institutions would inevitably end up reporting even purely domestic transactions, with potentially severe collateral consequences for innocent users, including account restrictions or closures. Jason Somensatto of Coin Center expressed relief that “this chapter is officially closed.”
On the market front, following the announcement, Coinbase stock gained approximately 3% to reach $188, while Bitcoin slipped slightly, down less than 1% to around $85,690. Coinbase reported Q2 2026 revenue of $1.22 billion, including $555 million from subscriptions and services.
FinCEN Maintains Its Vigilance
FinCEN is not giving mixers a free pass. The agency stated that illicit actors “continue to use mixers and other tools and methods to hinder law enforcement investigations” and added that it would continue to monitor money laundering and terrorist financing, with possible future action.
Existing Section 311 authorities remain intact, allowing FinCEN to take targeted action against specific foreign mixers in the future. The withdrawal of the broad proposal reflects a deliberate choice to maintain existing enforcement tools rather than create new ones.
Conclusion
The simultaneous withdrawal of both proposals marks a significant shift in U.S. policy toward digital assets. After six years of regulatory churn, the Treasury chose to abandon the broadest surveillance approaches while preserving existing enforcement tools. The likely scenario is targeted rather than systemic regulation: FinCEN may act against specific foreign mixers through Section 311 without imposing blanket obligations on the sector. For crypto users, the message is clear — financial privacy remains a recognized right, but regulated platforms retain their full suite of KYC and AML obligations.
Sources
This article is published for informational and educational purposes only. It does not constitute financial advice in any form. Always do your own research (DYOR) before making any investment decision.
