FinCEN withdraws its crypto wallet and mixing rules while the IRS clears staking for trusts: Washington's crypto week

Two proposals that hung over the US crypto industry for years were withdrawn in a single week. On 5 October the Financial Crimes Enforcement Network, the Treasury bureau responsible for anti-money laundering rules, filed notices withdrawing a 2020 proposal on transfers involving self-hosted wallets and a 2023 proposal targeting foreign crypto mixing. A day later the Internal Revenue Service issued Revenue Procedure 2026-20, which lets eligible investment and grantor trusts stake proof-of-stake assets without losing their federal tax classification, according to a summary by crypto.news.

Taken together, the moves show the direction of US policy in 2026: fewer blanket reporting requirements aimed at crypto as a category, and more specific guidance that lets regulated products such as exchange-traded funds operate. They also leave important questions open, because withdrawing a proposal does not change existing anti-money laundering obligations, and the IRS guidance comes with conditions.

The 2020 self-hosted wallet proposal is gone

The first withdrawn proposal dated from late 2020. It would have required banks and money services businesses to keep records for covered transfers above 3,000 dollars and to file reports for transactions above 10,000 dollars, including some transfers involving self-custody wallets, where users hold their own keys rather than leaving funds with an exchange.

The proposal drew intense opposition when it was published. Critics argued that it would impose surveillance on peer-to-peer transfers, burden exchanges with collecting information about people who were not their customers, and push activity toward less regulated channels. It never became final, but it remained on the books, creating uncertainty about whether it might be revived.

Its withdrawal removes that uncertainty. Exchanges and wallet providers no longer need to plan for a reporting regime specifically targeting self-hosted wallet transfers. Existing obligations, including suspicious activity reporting, customer due diligence and the Travel Rule for transfers between regulated institutions, remain in place.

The 2023 foreign mixing proposal is also withdrawn

The second withdrawn item was a 2023 proposal, together with a related money laundering finding, that would have treated transactions involving foreign crypto mixing services as a primary money laundering concern and imposed special reporting and record-keeping requirements on them.

Mixers combine transactions from many users to obscure the trail between sender and recipient. Authorities have linked some mixers to sanctions evasion and laundering by criminal groups, while privacy advocates argue that mixing serves legitimate needs such as protecting personal financial information.

FinCEN cited concerns that the proposal's definition could discourage lawful activity and create substantial compliance costs. The withdrawal does not legalise criminal use of mixers. Sanctions and money laundering laws still apply, and authorities can still act against specific services and individuals.

• 5 October: FinCEN withdraws the 2020 self-hosted wallet proposal (records above 3,000 dollars, reports above 10,000 dollars).
• 5 October: FinCEN withdraws the 2023 foreign mixing proposal and related finding.
• 6 October: IRS issues Revenue Procedure 2026-20 on staking by eligible trusts.
• 5 October: CFTC opens consultation on Regulation CTX and Regulation CAM.

Withdrawing a proposal is not deregulation of crime. It removes rules that targeted crypto as a category, while existing anti-money laundering duties stay in force.

The decision also reflects a wider debate about financial privacy. Many legitimate users want their transaction histories shielded from public view, particularly on transparent blockchains where anyone can trace payments. Policymakers are trying to find ways to target criminal abuse without treating every privacy tool as suspicious.

What IRS Revenue Procedure 2026-20 allows

The IRS guidance addresses a technical problem that had held back staking inside investment products. Many exchange-traded products are structured as grantor trusts, which are taxed as pass-through vehicles as long as they remain passive. Staking, which involves locking assets to help validate a blockchain in return for rewards, raised questions about whether a trust doing it would lose that status.

Revenue Procedure 2026-20 creates a safe harbour. Eligible investment and grantor trusts can stake proof-of-stake assets without losing their federal tax classification, provided they meet the conditions set out in the guidance. Among those conditions, rewards generally must reach holders within 60 days after the end of the relevant quarter.

The guidance does not exempt staking income from tax. Rewards remain taxable to holders under existing rules. What it does is remove a structural barrier, allowing funds that hold assets such as ether to earn staking rewards and pass them through to investors, which could make staking-enabled ETFs more attractive.

What it means for ETFs and exchanges

For issuers of crypto exchange-traded products, the IRS guidance is the more commercially significant of the week's moves. Funds that hold proof-of-stake assets have faced a choice between forgoing staking rewards and risking their tax structure. A safe harbour lets them offer investors the yield that holding the asset directly would provide.

The timing is notable. Spot bitcoin ETFs saw outflows of 484.9 million dollars on 7 October, the largest single-day outflow since June, as rate fears and oil prices weighed on risk assets. Products that offer yield on top of price exposure may help issuers attract investors in a weaker market.

For exchanges, the FinCEN withdrawals reduce compliance planning costs. Firms no longer need to prepare systems to collect counterparty information for self-hosted wallet transfers under the 2020 proposal. They will still invest heavily in transaction monitoring, sanctions screening and Travel Rule compliance, which remain core expectations.

What did not change

It would be wrong to read the week as a broad loosening of US crypto rules. Banks and money services businesses that handle crypto must still run anti-money laundering programmes, verify customers, monitor transactions, file suspicious activity reports and comply with sanctions. Enforcement actions continue, as shown by a New York settlement in which former Celsius chief executive Alex Mashinsky agreed to lifetime industry restrictions, with conditional payments that could total 35 million dollars.

Market structure legislation also remains unfinished. The broader framework for how crypto assets are classified and which regulator oversees them is still being debated in Congress, as we covered in our report on the CLARITY Act stall and ETF flows. The CFTC opened a consultation on 5 October on Regulation CTX and Regulation CAM, but its chair noted that compulsory registration would require congressional action.

Finally, withdrawn proposals can return in another form. A future administration or a changed threat picture could prompt new rules on self-hosted wallets or mixing. The withdrawals reflect current priorities rather than a permanent settlement.

What it means for Asia and global firms

US rules shape global practice because the dollar and US markets sit at the centre of crypto. When US authorities step back from category-wide proposals, exchanges and wallet providers worldwide gain clarity about what US-linked compliance will require. When the IRS clears staking for trusts, global asset managers can design products for US investors with more confidence.

Asian regulators are taking their own paths. Singapore is tightening its stablecoin and digital token rules, Thailand is enforcing licensing against offshore exchanges, and Indonesia is building a framework under OJK. For global firms, the result is a patchwork where the US is easing in some areas while Asian jurisdictions tighten in others.

For users, the practical impact of the US moves is limited in the short term. Self-custody remains legal and widely used, staking ETFs may become more common, and regulated exchanges will continue to apply strict checks.

Washington's crypto week cleared away two proposals that had lingered for years and gave staking a workable tax path inside investment trusts. The changes reduce uncertainty for exchanges and could unlock staking-enabled ETFs, but they do not weaken the anti-money laundering framework that regulated firms must follow. For the industry, the message is clarity rather than freedom from rules, and for global firms watching the US, a signal that targeted guidance is replacing category-wide restrictions.