The past few weeks and months have been marked by a strong increase in the regulation of Bitcoin and other cryptocurrencies. Global regulators cracked down on exchanges while agencies like the Department of Justice released reports highlighting the risk of crime enabled by cryptocurrencies.
On Wednesday, Coinbase CEO Brian Armstrong published a series of tweets commenting on rumors of new regulations for noncustodial cryptocurrency wallets that the U.S. Treasury is allegedly planning on “rush[ing] out.” Armstrong did not disclose who or which entity told him these rumors.
The Treasury is led by Treasury Secretary Steven Mnuchin. President Trump, who Mnuchin answers to, once tweeted out that he is “not a fan of Bitcoin and other Cryptocurrencies.” He referenced the potential “unlawful behavior” such as the trading of drugs as part of his reasoning.
Armstrong says that from the information he received, it appears that the regulation may require financial institutions such as exchanges to “verify the recipient/owner of the self-hosted wallet, collecting identifying information on that party, before a withdrawal could be sent to that self-hosted wallet.”
If true, it would allow regulators to develop a web of addresses and identities.
The executive elaborated that such regulation would be dangerous, “because they allow anyone to use this new technology to access basic financial services – just like anyone can use a computer or smartphone to access the open internet.”
In mandating data collection of that scale, Armstrong explained, the accessibility of cryptocurrencies would only begin to match that of traditional banks. He added that this system, if only implemented in the U.S., would naturally create a “walled garden” between cryptocurrencies in the U.S. and abroad:
Given these barriers, we’re likely to see fewer transactions from crypto financial institutions to self-hosted wallets. This would effectively create a walled garden for crypto financial services in the U.S., cutting us off from innovation happening in the rest of the world.
Not Taking This Lying Down
Appearing to see the rumor as valid, Coinbase has purportedly sent a letter to the Treasury to outline the concerns of overregulating the space. Coinbase was joined by “a number of other crypto companies and investors” in the sending of the letter, Armstrong said.
The letter was not published, and the names of Coinbase‘s collaborators were not shared.
Coinbase‘s decision to not take this potential regulation lying down is a similar move to that taken by Bitonic.
As The BTC Times reported previously, Bitonic, a Dutch Bitcoin exchange, is pursuing an independent legal verdict of a mandate by the Dutch central bank, similar to the one described by Armstrong. The company is required by the central bank to require users who want to withdraw bitcoin to prove they own their bitcoin addresses.
If the rumor proves to be true, it remains to be seen how such regulation would be received by the Bitcoin-friendly politicians in high offices in the U.S.
The Office of the Comptroller of the Currency (OCC), a branch of the Treasury that regulates local and international banks that operate in the U.S., recently installed a new comptroller that is bullish on Bitcoin.
In July, the OCC revealed that federally charted banks can automatically provide cryptocurrency custody services for its clients.
More recently, incoming U.S. senator Cynthia Lummis began to promote Bitcoin on national television, sayinh to Fox News that one of her priorities during her time in office will be to promote the asset as a viable store of value.
It is unclear if these Bitcoin proponents could stop a war against Bitcoin self-custody and privacy.