US Treasury Withdraws Controversial Crypto Surveillance Proposals

The US Treasury Department has decided to withdraw two long-standing proposals aimed at enhancing surveillance of cryptocurrency transactions, a move that is being hailed as a major victory for privacy advocates and the digital asset industry.

On Monday, the Financial Crimes Enforcement Network (FinCEN) filed notices to rescind its 2020 proposal concerning 'unhosted wallets' and a 2023 plan that categorized international crypto mixing as a significant money laundering concern. These notices are expected to be published in the Federal Register on Tuesday.

Coin Center, a Washington-based crypto policy group, described the decision as a 'significant victory for financial privacy.' The group had previously criticized the broad definition of mixing, which encompassed common practices used by regular cryptocurrency users to maintain their privacy. They argued that the proposed regulations could lead financial institutions to report even domestic transactions, potentially resulting in severe consequences for innocent users, such as account restrictions or closures.

The unhosted wallet rule would have mandated banks and other financial institutions to report certain crypto transactions exceeding $3,000, and $10,000 for assets held in unhosted wallets. The mixing proposal was even broader, defining mixing as any activity that obscured the source, destination, or amount of a transaction, which could include pooled funds, split transfers, and single-use wallets.

FinCEN acknowledged that the proposed definitions could have a chilling effect on legitimate activities and would overwhelm institutions with paperwork. The agency also noted that while illicit actors continue to use mixers to obscure transactions, it will maintain vigilance against money laundering and terrorist financing.

This reversal aligns with broader White House policy. A report from the President’s Working Group on Digital Asset Markets in July 2025 emphasized the importance of allowing lawful users of digital assets to transact privately on public blockchains, urging the Treasury to reconsider its previous stance on the rules.

In a related development, the Treasury has acknowledged that crypto mixers are not solely tools for criminals. In a March 2026 report to Congress, it stated that lawful users may utilize mixers to protect their financial privacy on public blockchains, marking a significant shift in the agency's approach since it sanctioned Tornado Cash in 2022.

While the acknowledgment of legitimate uses for mixers is a positive step for privacy advocates, the Treasury emphasized that these tools should be accompanied by proper safeguards, such as record-keeping, to ensure compliance with regulations.

New Developments in Crypto Regulation

On October 5, 2023, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) announced the withdrawal of its controversial reporting proposal for crypto mixing. This proposal aimed to regulate techniques that obscure the source, destination, or amount of transactions.

FinCEN's withdrawal includes both its 2023 finding that classified international crypto mixing as a primary money laundering concern and the proposed recordkeeping and reporting rule. The withdrawal is set to be published in the Federal Register on October 6, 2023.

Concerns raised by commenters highlighted that the expansive definition of crypto mixing could hinder legitimate activities and impose significant reporting burdens on financial institutions.

The proposed obligations would have applied to domestic financial institutions that knew or suspected involvement in mixing transactions, regardless of the methods used, including pooling funds and routing through single-use wallets.

While the crypto mixing proposal has been dropped, existing regulations for money transmitters, including registration and anti-money laundering programs, remain in effect. FinCEN will continue to monitor crypto mixing activities for potential illicit use.