Treasury withdraws crypto mixing rule, citing concerns over 'chilling effect on legitimate activity'

The U.S. Treasury Department's Financial Crimes Enforcement Network, known as FinCEN, is withdrawing its 2023 proposal targeting crypto mixing, citing concerns that the rule could have "a chilling effect on legitimate activity," according to a notice posted to the Federal Register's public inspection site on Monday.

The notice, signed by FinCEN Deputy Director Jimmy L. Kirby, is scheduled for formal publication on Tuesday. A second notice posted Monday withdraws a 2020 proposal that would've required banks and money services businesses to verify the identities of users of self-hosted wallets.

The withdrawals end both rulemakings, and because neither proposal was finalized, the withdrawals do not change financial institutions' existing obligations.

FinCEN's 2023 crypto mixing rule proposal

Monday's 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.

Under that proposed rule, banks and other covered institutions would have been required to file reports on mixing transactions with details down to wallet addresses, transaction hashes, and IP addresses. The proposal defined "mixing" as facilitating transactions in a way that obscures their source, destination, or amount, including by pooling funds, splitting transactions, using single-use wallets, or allowing user-initiated delays so deposits and withdrawals can't be matched by timing.

FinCEN said the withdrawal was informed by commenters' concerns that "the expansive definition of CVC mixing" could chill legitimate activity and "place a large reporting burden on covered financial institutions." The agency said it still believes illicit actors use mixers to hinder law enforcement investigations.

FinCEN also cited the 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 recommended Treasury consider next steps on the mixing proposal.

The agency said it "will continue to monitor activity involving CVC mixers" for signs of illicit finance and may take steps in the future to address it.

Section 311 of the USA PATRIOT Act had never been used had never been used against a class of transactions before FinCEN proposed the rule. Coinbase pushed back in a January 2024 comment letter, saying the proposed rule's lack of a dollar threshold would mean bulk reporting of non-suspicious transactions.

The 2020 self-hosted wallet rule

The second notice withdraws a December 2020 proposal that the first Trump administration put out weeks before leaving office.

The proposal would have required banks and money services businesses to verify customers' identities and keep records when a counterparty used an unhosted wallet, or a wallet at a non-Bank Secrecy Act institution in a foreign jurisdiction FinCEN identified, for transactions above $3,000. Transactions above $10,000, or several totaling more than $10,000 in 24 hours, would have been reported to FinCEN.

FinCEN said in the withdrawal notice that the move is part of the Trump administration's "ongoing efforts to ensure digital asset regulations are fit-for-purpose," citing the same July 2025 report. The agency "will not take any further action" on the proposal, it said.

Coin Center, the crypto advocacy group that fought both proposals, said 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."

The group said the wallet rule "would have created a double standard for cryptocurrency transactions."

Tornado Cash and Treasury's view of mixers

Treasury had already removed Ethereum-based mixer Tornado Cash from its sanctions list in March 2025, after an appeals court ruled that the Office of Foreign Assets Control had exceeded its authority.

This March, a Treasury report to Congress required by the GENIUS Act said mixers have legitimate privacy uses. It also asked lawmakers for a "hold law," so financial institutions could temporarily freeze suspicious digital assets.

Treasury declined to comment to The Block on the record.