New US Treasury rule planned to stamp out illicit proceeds cryptocurrency The deals have drawn strong opposition from the industry, sparking a battle that threatens to cast a shadow over the recent digital currency boom.
The proposal would require custodians and exchanges to collect and report identifying information about significant transactions involving unhosted wallets – cryptocurrency accounts held outside financial institutions.
The Financial Crimes Enforcement Network (FinCEN), a division of the Treasury, said the rule would protect national security and prevent crime.
But more than 7,000 cryptocurrency groups and advocates have filed public comments on the rule, citing concerns about privacy rights and accusing the Treasury of engaging in “midnight regulation.”
Cryptocurrency exchange Coinbase and one of its biggest investors, Andreessen Horowitz, questioned the rule’s legality in separate letters to Treasury officials.
Jack Dorsey, chief executive of payments firm Square, also criticized the proposals, affirming they will “prevent people from participating fully in the economy”.
“Anyone who touches crypto realizes that this rule is fundamentally flawed,” said Gus Coldebella, general counsel for Paradigm, a cryptocurrency venture capital firm.
In a letter co-signed by venture capital firms Ribbit Capital and Union Square Ventures, Paradigm said the rule would create “onerous and unprecedented” requirements for cryptocurrency transactions and could make it harder to police bad actors. .
The responses reflect the challenges of the cryptocurrency industry, whose most lucrative applications are largely paid exchanges. America’s largest cryptocurrency exchange, Coinbase, is bracing for a much-anticipated public listing, with Bitcoin surging this year to briefly exceed $ 40,000 before falling sharply on Sunday.
Analysts said the Treasury rule could also create unintentional burdens for the rapid growth field of decentralized finance, in which software performs traditional financial activities using cryptocurrencies and without an intermediary
The Treasury proposal targets non-hosted wallets, software applications that allow users to directly hold and trade cryptocurrencies without revealing personal details. Global regulators are increasingly concerned that accounts can be used for money laundering and other types of illicit activity.
Chainalysis, a software company used by government agencies to monitor cryptocurrency transactions, valued that 1.1% of cryptocurrency transactions in 2019 involved illicit activity, representing more than $ 10 billion in transactions.
Some digital token advocates have argued that the requirements could lead bad actors to more loosely regulated forums and expand the reach of the bank secrecy law, forcing cryptocurrency intermediaries to collect information not only on customers, but also on the counterparts.
“The net effect is very, very different [from the equivalent rules in traditional financial markets] and improves surveillance and loss of privacy, ”said Garrick Hileman, head of research at Blockchain.com, which hosts a cryptocurrency wallet and exchange.
Treasury Secretary Steven Mnuchin said in December that the proposed rule was “in line with existing requirements” and “would increase transparency while minimizing the impact on responsible innovation.”
Opponents of the rule have also criticized the 15-day period allowed by the Treasury for comments, which is much shorter than the usual 60-day comment period for the new rules. The agency cited national security risks and previous dialogue with the cryptocurrency industry to justify the shortened window.
“It seems pretty clear that the industry thinks the proposal may not work and FinCEN may, in response to these comments, make adjustments to the final rule or re-propose the rule,” said Joshua Kaplan, partner at the firm. lawyer Wilson Sonsini who focuses on FinTech and money laundering rules.
“It is also possible that Congress will be called upon to address digital currencies in future legislation.