U.S. Treasury Withdraws Two Cryptocurrency Surveillance Rules
The Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury officially withdrew two long-stalled proposed cryptocurrency rules on October 5, with the notice set to be published in the Federal Register on October 6. One rule pertains to so-called non-custodial wallets, and the other to convertible virtual currency mixing. The agency stated that it reviewed public comments and withdrew the rules as part of the current administration's deregulatory agenda, aiming to make digital asset regulations more applicable to their use.
The non-custodial wallet rule was proposed in December 2020, during the final weeks of the first term. It targets wallets controlled by users rather than held by banks or exchanges. The proposed rule required banks and money service businesses to collect and retain counterparty information for transactions over $3,000, and to report transactions exceeding $10,000 or totaling over that amount within 24 hours to the agency.
The mixing rule was proposed in 2023. It aimed to classify foreign cryptocurrency mixing as a "primary money laundering concern" under Section 311 of the USA PATRIOT Act. Affected financial institutions would be required to report related transactions, including wallet addresses, transaction hashes, and network addresses, and to retain customer identity records. Mixing services obscure the source of funds by pooling and scrambling the paths of coins.
Neither rule had taken effect, but their pending status left room for potential reactivation. The non-custodial wallet proposal was marked for withdrawal on the regulatory agenda as early as April 12, 2024, with this being the formal notification. Both withdrawals cited the White House's July 2025 digital asset report, which states that the government supports legitimate users trading privately on public blockchains. Coin Center called this a significant victory for financial privacy while noting that the Treasury still has the statutory authority to propose similar rules.
Coin Center, founded in 2014 by Jerry Brito and Robin Weisman in Washington, is one of the earliest cryptocurrency policy think tanks in the area and has long opposed these two proposals. The organization argued that the non-custodial wallet rule would collect counterparty information that is not even customer-related under the Bank Secrecy Act's no-order reporting system, creating a double standard for cryptocurrency transactions compared to traditional transfers.
This marks a reversal of expected regulatory direction, not an immediate migration of funds. Buyers include self-custodial wallet users, mixing services, and exchanges that factor compliance costs into their fees, while sellers are compliance vendors that were prepared to expand on-chain counterparty databases. The event is driven by a contraction of surveillance boundaries: the thresholds for retaining over $3,000 and reporting over $10,000 are no longer in effect. Beneficiaries include self-custody and privacy tools, while those under pressure include compliance services that charge based on expanded reporting requirements and law enforcement agencies still needing to pursue illegal funds under existing sanctions and fraud provisions.
Source: Public Information
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The non-custodial wallet rule originated in December 2020, proposed by the Treasury before its first term ended; the mixing rule came from 2023, when Tornado Cash had already been sanctioned, and the Treasury used Section 311 of the PATRIOT Act to classify "foreign mixing" as a primary money laundering concern. Coin Center has opposed the proposals since the public comment phase, arguing that the Bank Secrecy Act would extend to non-customer counterparties. The April 2024 agenda had already marked the wallet rule for withdrawal, and the formal cancellation on October 5, 2026, indicates that administrative agendas and regulatory cancellations are not the same step.
The withdrawal does not eliminate enforcement budgets; it merely halts two expansion channels. The wallet rule would have required banks and money service businesses to create retrievable records of self-custodial addresses, identities, and amounts; the mixing rule would have mandated reporting of addresses, hashes, and network addresses. Capital will therefore not flow into a new mandatory reporting system, and compliance expenditures will remain within existing sanctions screening and suspicious activity reports. The White House's July 2025 report explicitly supports legitimate users trading privately on public chains, providing administrative justification for this cancellation rather than new legislation.
A comparison can be made to the tightening of beneficial ownership rules for financial institutions by the Treasury in 2015, which was in the opposite direction. That time, the identities behind customers were required to be documented; this time, the default is to refuse to document on-chain counterparties. The industry's position is in a phase of retreat from control: licensed exchanges still need to conduct customer identification, while self-custody and mixing are no longer preemptively included in the same reporting network. Coin Center has long advocated "writing code, networking, and using privately" as policy goals, and this withdrawal marks the realization of two items on its long lobbying list.
Structurally, this represents a regulatory change. The mechanism does not indicate that money laundering risks have disappeared, but rather that collection thresholds have not narrowed according to illegal financial risks, yet must cover all large legitimate transactions. The formal withdrawal closes the option of "proposals hanging in limbo, ready to be restarted at any time." The Treasury retains the right to propose rules, so the privacy boundary returns to case-by-case enforcement rather than bulk reporting.
ABAB News · Cognitive Laws
Hanging drafts are a form of regulation in themselves.
Surveillance expansion relies on thresholds, while contraction relies on formal cancellations.
Unrealized rules will still change others' quotes.