Crypto News

FinCEN withdraws crypto mixing and self-hosted wallet rule proposals

Oct 06, 2026 09:11 Written by Newisty Editorial Team regulation fincen treasury crypto mixing self-custody

The US Treasury Department's Financial Crimes Enforcement Network, known as FinCEN, has withdrawn a2023 proposal that would have made crypto mixing a target of strict reporting rules. The agency said comments from the public raised concerns that the rule could have "a chilling effect on legitimate activity."

FinCEN is also pulling back a separate 2020 proposal that would have required banks and money services businesses to identify users of self-hosted wallets, which are wallets controlled by the owner rather than by a company.

Both withdrawals end long-running rulemaking efforts. Because neither proposal was ever finalized, the withdrawals do not change what financial institutions are required to do today.

The main points

The mixing notice was posted to the Federal Register's public inspection site on Monday, October 5, 2026, and was scheduled for formal publication on Tuesday. It was signed by FinCEN Deputy Director Jimmy L. Kirby.
A second notice, also posted Monday, withdraws the December 2020 self-hosted wallet proposal and says FinCEN "will not take any further action" on it.
FinCEN said it still believes criminals use mixers to slow down law enforcement investigations, and that it "will continue to monitor activity involving CVC mixers."
Treasury declined to comment to The Block.

What the two notices cover

The mixing notice withdraws FinCEN's October 2023 finding that international convertible virtual currency mixing is "a class of transactions of primary money laundering concern," along with the proposed rule attached to it. That category comes from Section 311 of the USA PATRIOT Act, a U.S. anti-money laundering law. According to The Block, Section 311 had never been used against a class of transactions before FinCEN proposed the rule.

Under the proposal, banks and other covered institutions would have had to file reports on mixing transactions with details down to wallet addresses, transaction hashes, and IP addresses. The proposal described mixing broadly: facilitating transactions in a way that hides where they came from, where they went, or how much they were worth. It listed examples such as pooling funds, splitting transactions, using wallets that are used only once, or adding user-controlled delays so deposits and withdrawals cannot be matched by timing.

The 2020 proposal would have required banks and money services businesses to verify customer identities and keep records when a counterparty used an unhosted wallet, or a wallet at an institution outside the Bank Secrecy Act framework in a foreign country FinCEN had identified, for transactions above $3,000. Transactions above $10,000, or several adding up to more than $10,000 within 24 hours, would have been reported to FinCEN. That proposal was released weeks before the first Trump administration left office.

Why FinCEN reversed course

FinCEN said the mixing withdrawal was informed by commenters who warned that "the expansive definition of CVC mixing" could suppress lawful activity and "place a large reporting burden on covered financial institutions."

The agency pointed to a July 2025 report from the President's Working Group on Digital Asset Markets, which said "lawful users of digital assets may leverage mixers to enable financial privacy when transacting through public blockchains." That report asked Treasury to consider next steps on the mixing proposal.

For the wallet proposal, FinCEN called the withdrawal part of the Trump administration's "ongoing efforts to ensure digital asset regulations are fit-for-purpose," again citing the July 2025 report.

Industry reaction

Coinbase, the largest U.S. crypto exchange, had already objected in a January 2024 comment letter, saying the mixing proposal had no dollar threshold. In its view, that would have meant bulk reporting of transactions that were not suspicious.

Coin Center, a crypto advocacy group that opposed both proposals, wrote in a Monday blog post that the mixing definition was "extraordinarily broad, sweeping in common techniques used by ordinary cryptocurrency users to preserve their privacy." On the wallet rule, the group said it "would have created a double standard for cryptocurrency transactions."

Treasury's earlier position on mixers

This withdrawal comes after a series of Treasury moves on mixers. In March 2025, the department removed the Ethereum-based mixer Tornado Cash from its sanctions list after an appeals court ruled that the Office of Foreign Assets Control had gone beyond its authority. More recently, a Treasury report to Congress in March, required by the GENIUS Act, said mixers have valid privacy uses. It also asked lawmakers for a "hold law," which would let financial institutions temporarily freeze suspicious digital assets.

What is confirmed

FinCEN posted two withdrawal notices on Monday, October 5, 2026, and signed the mixing notice by Deputy Director Jimmy L. Kirby.
The withdrawals end both rulemakings. Neither proposal had been finalized, so current obligations for financial institutions are unchanged.
FinCEN stated its reasons in the notices: commenter concerns about a chilling effect and reporting burden for the mixing rule, and fit-for-purpose regulation for the wallet rule.
FinCEN said it will keep monitoring mixers and may take future steps.

What remains open

The notices do not rule out future action. FinCEN said it will continue watching mixer activity and may act later if it sees signs of illicit finance. It also said the withdrawal decision reflects public comment, not a finding that mixers pose no risk. Treasury did not respond to questions from The Block, so no further explanation from the department is available.

Why this matters

The two proposals had been pending for years and drew heavy criticism from crypto companies and privacy-focused users. Withdrawing them removes a reporting burden that banks and money services businesses would have faced, and it means there is no federal plan on the table to require identification of self-hosted wallet users. At the same time, FinCEN's statement that it will keep monitoring mixers signals that the issue is not considered settled.