New threats to self-custody take shape in the US, Nov. 27–Dec. 4

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New threats to self-custody take shape in the US, Nov. 27–Dec. 4

Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law. 

Editor’s note

For several weeks, rumors have circulated in the United States that the Treasury Department under Steven Mnuchin is planning some sort of rulemaking to ban or severely restrict self-hosted cryptocurrency wallets.

The Treasury hasn’t made any public statements to support these rumors, but they are persistent and pervasive enough to be worth paying attention to. In the broader cycle of financial news, Secretary Mnuchin is currently under a lot more scrutiny for his plans to return nearly half a trillion dollars of unspent funds from the March CARES Act to the General Fund by the end of the year, which the administration of Joe Biden would need congressional approval to access. He’s also on his way out the door, so he’s really just settling up his tabs at this point.

Potential Treasury rulemaking is not the only threat to crypto on the horizon this week, but it is an interesting question. Without statutory defenses for self-custody and unhosted wallets from Congress, there’s really nothing to stop a Treasury order from holding legal weight, at least for some time. I, for one, have no faith in the Treasury’s technological wherewithal to actually enforce any blockade on unhosted wallets. However, if the department has the legal right to sue Coinbase, or Kraken, or Gemini for transactions with unhosted wallets, there is no question that such a move would cause the whole market to frost over.