The Treasury Department is scrapping two long-stalled crypto surveillance proposals, handing a major win to privacy advocates and the digital asset industry.

The Financial Crimes Enforcement Network filed notices Monday withdrawing its 2020 “unhosted wallet” rule and a 2023 plan to brand international crypto mixing a “class of transactions of primary money laundering concern.” Both notices are set to appear in the Federal Register on Tuesday.

In a Monday statement, the Washington crypto policy group Coin Center said the news was “a significant victory for financial privacy.” 

“The definition of mixing was extraordinarily broad, sweeping in common techniques used by ordinary cryptocurrency users to preserve their privacy,” Coin Center said. 

“And because FinCEN acknowledged the difficulty of determining where a mixing transaction occurred, we argued that risk-averse financial institutions would inevitably report even purely domestic transactions, with potentially severe collateral consequences for innocent users, including account restrictions or closures.”

The wallet rule would have required banks and other financial institutions to report certain crypto transactions above $3,000 and $10,000 when customers held the assets in unhosted wallets. 

The mixing proposal cast an even wider net. It defined mixing as anything that obscured the source, destination or amount of a crypto transaction, sweeping in pooled funds, split transfers, single-use wallets and even swaps between assets. FinCEN said commenters warned the definition “could have a chilling effect on legitimate activity” and would bury institutions in paperwork.

Institutions would have had to hand over wallet addresses, transaction hashes, IP addresses and customer identity details.

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