There has been strong opposition to the planned new US Treasury rule. This is concerning its effort to help stamp out any illegal transactions on cryptocurrency. It has led to a battle threatening to cast a shadow over the latest digital currency boom.
The proposal will require exchanges and custodians to report and collect information. It will concern large transactions that involve wallets that are unhosted. The unhosted wallets refer to the crypto accounts that are held outside financial firms.
According to the Financial Crimes Enforcement Network (FinCEN), the rule will protect national security and help in crime prevention. But more than 7,000 crypto groups and advocates have managed to file public comments citing concerns on privacy rights. They also accused the Treasury of taking part in ‘midnight rulemaking.’
Cryptocurrency exchange Coinbase, together with one of its largest investors, Andreessen Horowitz, has questioned the legality of the rules by writing different letters to the Treasury officials.
Jack Dorsey, Square chief executive revealed that the proposal will neglect individuals from taking part in the economy.
“Any person that touches the crypto will realize that this rule is completely flawed,” the general counsel of Paradigm Gus Coldebella revealed. Paradigm is a capital firm that ventures in cryptocurrency.
In one of the letters co-signed by Union Square Ventures and Ribbit Capital firms, Paradigm stated that the rule will create unprecedented and burdensome cryptocurrency transactions requirements. This will also pose a challenge in managing the bad actors.
The responses reflect the stakes in the cryptocurrency industry. The industry has fee-based exchanges as the most lucrative applications.
Coinbase, one of the largest cryptocurrency exchanges in the US, is preparing for a highly anticipated public listing. This can be highly contributed to the BTC (bitcoin) surge this year, surpassing the $40,000 mark before dropping on Sunday.
According to analysts, the Treasury rule will create unintended burdens for decentralized finance (DeFi). It is a fast-growing industry where software programs execute old financial activities using the cryptos without any intermediaries.
The Treasury’s proposals target wallets that are not hosted and software applications that allow users to hold and transact cryptocurrencies directly without revealing their details. The global regulators have become worried that these accounts can be used for money laundering and other illicit activities.
According to Chainalysis, approximately 1.1% of the 2019 cryptocurrency trades involved illicit activities. The transaction represents more than $10B in value. There are advocates in digital token who claimed the requirements force the bad actors to move to loosely regulated forums. This will also extend the Bank Secrecy Act scope to force the cryptocurrency intermediaries to gather information about their customer’s counterparties.
“The net effect is completely different and improves surveillance and privacy loss,” revealed the head of research at Blockchain.com, Garrick Hileman.
According to Steven Mnuchin, the Treasury Secretary, the proposed rule is consistent with the current requirements. Eventually, it will increase transparency while reducing responsible innovation. Those opposing the rule criticized the 15 days allowed by the Treasury for comments. According to them, this is relatively short compared to the standard 60-day comment period for the new rules. The agency claimed national security risks as the primary reason for this. But they have also included previous dialogue with the cryptocurrency industry to justify the shortened window.
Joshua Kaplan, who is a partner at the law firm Wilson Sonsini revealed that it was reasonably clear the industry believes the proposal might fail to work. In effect, FinCEN might in return decide to make adjustments to the final rule. Joshua Kaplan also claimed that Congress might be called to address digital currencies in future legislation.