The Biden administration will soon have to settle a bitcoin fight it didn’t even start, and its decision could have far-reaching implications for the cryptocurrency industry.
The battle concerns last-minute rules proposed by the Trump administration that would create new requirements for financial services firms to record the identities of cryptocurrency holders.
The measures are meant to smother attempts to use bitcoin and other cryptocurrencies for money laundering or to finance illegal activities. If adopted, they could cause cryptocurrency prices to plummet, according to some analysts.
Heavyweights from both K Street and Wall Street have mobilised against the rule, including the US Chamber of Commerce, mutual fund giant Fidelity Investments and venture capital firm Union Square Ventures. Cryptocurrency players like the Winklevoss twins, the Blockchain Association and Coinbase are also fighting the measures.
After President Donald Trump lost the election, the US treasury department raced to issue the rules, which fell under its Financial Crimes Enforcement Network, or FinCEN. The move generated thousands of negative comments and drew the threat of a lawsuit by a crypto trade group — prompting a last-minute reprieve that pushed the final decision to the Biden administration and treasury secretary Janet Yellen. There’s no timetable for when a decision will be made.
The proposal threatens what some view as bitcoin’s strongest feature: the ability to send money without the government watching. Users whose wallets now are only identified with codes would have their true identities recorded with the financial institutions they zealously avoided.
If Yellen moves forward with the rules, crypto proponents say some virtual currency services will become more costly and some uses of such currencies could disappear completely. If she doesn’t, some fear criminals will be free to circumvent US surveillance to hide money or finance terrorism.
If adopted, the regulations could cause a sharp fall in the prices of virtual currencies like bitcoin, said Matthew Maley, chief market strategist for Miller Tabak & Co, adding that he thinks bitcoin’s price will continue to rise in the long term. On Thursday at 5pm in New York, one bitcoin cost US$47 919, up 5.7% from the end of February, but still nearly 18% below its peak on 21 February.
“Bitcoin is very risky and very volatile and it’s going to continue to be that way. If you add something like a new regulation, it’s going to be very vulnerable to a correction,” Maley said.
At issue is a FinCEN proposal meant to make it harder for bitcoin users to hide their identities. One part of the rule would require banks and money services businesses, like cryptocurrency exchanges, to file a report to the US treasury when a customer moves at least $10 000 worth of virtual currency into a wallet not hosted at an exchange. Those so-called unhosted wallets can be kept offline and are hard to track. Banks send such reports under anti-money laundering rules when customers withdraw $10 000 in cash.
The second part of the regulation would require banks and exchanges to keep a record whenever their customers send $3 000 worth of virtual currencies to someone else’s unhosted wallet. The record would have to include the identity of the counterparty, something that bitcoin advocates said would be expensive and sometimes impossible to verify.
Normally, such rules undergo a lengthy public process that involves months of feedback and revisions. But when FinCEN published the rule on 18 December, it said it wanted to move swiftly and allowed only 15 days for comments — during a time period that included both Christmas and New Year’s Eve. As a rationale, FinCEN officials said the lack of oversight on some transactions was a national security threat.
The truncated comment period took bitcoin advocates by surprise, said Kristin Smith, who leads the Blockchain Association, a cryptocurrency trade group. Smith said she had expected the US treasury to take several months, but it suddenly became an “all-hands-on-deck situation”. The organisation in December threatened to sue the treasury for rushing the…