Treasury Scraps Contested Wallet Reporting Proposal

Six years after its initial introduction, the United States Department of the Treasury under President Donald Trump's second administration has officially withdrawn a controversial crypto privacy rule aimed at unhosted wallet transactions. According to CoinSlate, the formal withdrawal terminates a long-running regulatory proceeding that generated thousands of public objections, spanned two presidential administrations, and previously appeared as withdrawn on federal regulatory agendas long before its final official notice was issued.

Origins of the Crypto Privacy Rule

The regulatory effort began on Dec. 18, 2020, during the final weeks of Trump's first presidential term under Treasury Secretary Steven Mnuchin. The Financial Crimes Enforcement Network, a bureau of the Treasury Department responsible for anti-money laundering enforcement, introduced a proposal requiring banks and money-services businesses to gather detailed customer data on self-directed cryptocurrency transfers.

Under the original 2020 framework, crypto exchanges and covered financial institutions would have been required to submit formal reports for individual or aggregated daily transactions exceeding $10,000 that involved unhosted wallets. Furthermore, transactions over $3,000 would have triggered enhanced recordkeeping requirements, compelling institutions to verify their customer's identity and record the legal name and physical address of the customer's counterparty.

Years of Debate Over Unhosted Wallets and Financial Tracking

The Treasury Department initially justified the tight 15-day public comment window over the Christmas and New Year holidays by citing national security imperatives and the potential misuse of digital assets in illicit finance. However, the proposal triggered immediate pushback from digital asset holders and industry participants who argued that direct control over private keys was a foundational element of public blockchain technology.

While traditional banking systems rely on central institutions that record user identities and provide data to law enforcement, public blockchains log transaction timestamps, amounts, and public addresses without displaying names or physical locations. The withdrawal marks the end of Washington's multi-year effort to mandate institution-level counterparty identification for transactions moving to privately held crypto wallets.