| Bitcoin | $39,706 | 7 day: +38% | | Ethereum | $1,270 | 7 day: +71% | | All crypto | $1 trillion! | 7 day: +32% | | Bitcoin dominance | 69% | 7 day: -1.4% | Prices as of 1 p.m. EST
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This topic was tough to report. Most of the publications and lobbying activities on this topic have been written by publications whose owners are substantial cryptocurrency investors, or by influential stakeholders who benefit from cryptocurrency transaction volumes and prices increasing. Unfortunately, I found the reporting on this issue in the mainstream crypto press to be unfairly one-sided in favor of cryptocurrency companies, attacking the government for enforcing its important mandates. Below, I have tried to thread the needle and deliver a report from the middle road. Thank you for reading. As always, feel free to hit "reply" and let me know your thoughts on this important issue. I regret any error that remains. | |  Aaron |  |
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Investors in cryptocurrency companies are complaining about FinCEN's rules regarding self-hosted cryptocurrency wallets. The complaints often omit that compliance with FinCEN's Travel Rule has been low for years, regardless of the recently proposed additions. Critics also overlook how lucrative the business of offshore wealth transfer has been — the billions in fees on lucrative accounts and transactions with minimal paperwork, KYC/AML, and compliance costs in comparison to traditional banks. What is FinCEN's Travel Rule? - The Financial Crimes Enforcement Network (FinCEN) is a U.S. Treasury bureau.
- The core requirement of its Travel Rule is that all financial institutions sending funds greater than USD$3,000 internationally must include the name and address of the person initiating the transaction alongside the transaction itself.
- This has been U.S. law for years. There is nothing new being proposed regarding this requirement.
- The Travel Rule helps institutions that receive money from the U.S. (e.g. banks abroad) to combat money laundering and terrorism. Obviously, foreign institutions have more knowledge of their local residents than the U.S. money transmitters sending that money.
- Indeed, the term "financial institution" includes "futures commission merchants and introducing brokers in commodities," which likely applies to cryptocurrency exchanges, as bitcoin is a commodity under U.S. law.
- The compliance rate with FinCEN's Travel Rule has been low. So this year, FinCEN is escalating it. In December, FinCEN clarified that transmissions into private, self-hosted cryptocurrency wallets would trigger a Travel Rule requirement, as the transmitter cannot know that a private wallet transaction is not an international remittance.
- On Jan. 4, 2021, the comment period ended, and cryptocurrency exchanges' stakeholders were not happy.
Today's multi-part story on the Travel Rule continues below... FinCEN 
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FinCEN's proposal: - On Dec. 18, 2020, the U.S. Treasury's FinCEN published a 92-page proposal on amending rules regarding money service businesses (MSBs) reporting cryptocurrency transactions with unhosted wallets.
- FinCEN suggested that using unhosted wallets (or covered wallets, where users own a private key to execute transactions) increases Anti-Money Laundering (AML) risks, because holders have independent control over the transaction in the absence of a regulated financial intermediary.
- The proposed rule would require regulated MSBs such as Coinbase to provide personal information to FinCEN on users who send virtual currencies exceeding $10,000 from any centralized crypto exchange to a private wallet.
- According to a news report, if passed, the rule would mandate financial institutions dealing with digital asset transactions to manage records, submit records, and verify user identity of any transaction involving private crypto wallets exceeding the threshold.
- Through these amendments, FinCEN does not intend to modify monetary instruments' regulatory definitions, nor change the existing Bank Secrecy Act requirements as applicable to financial instruments.
- The detailed notice does not clearly define an unhosted wallet. Ex-New York Department of Financial Services enforcer Andrew Jacobson thinks that FinCEN might be somewhat unaware of unhosted wallets' unique characteristics.
- The U.S. Treasury indicated in a press release that FinCEN's "substantial" proposal is in-line with national security concerns in the virtual currency market.
Today's multi-part story on the Travel Rule continues below... Law360
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 A Ledger hardware wallet In the wake of another Ledger hack: - The crypto industry reacted negatively and scrutinized the short period allotted for public commenting of 15 days.
- FinCEN's proposal is also timely because of another Ledger hack recently. (Ledger's marketing database has been compromised many times.)
- During this most recent Ledger database hack, a hacker gained access to the e-commerce and marketing database containing over 1 million email addresses and more than 9,000 postal addresses belonging to Ledger's customers.
- The incident proved that third-party services are vulnerable to hacks, and information such as personal data and keys stored in some databases are at risk.
- Even records securely kept by the FinCEN leaked in 2020, according to Buzzfeed's FinCEN files.
- Industry experts argue that records maintained following FinCEN's proposed rulemaking would make these databases even more susceptible to hackers, becoming a honeypot for cybercrime.
Today's multi-part story on the Travel Rule continues below... Forbes
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Billionaires push back on the proposal: - The most vocal critics of FinCEN's stricter rule regarding anonymous cryptocurrency wallets, who often have financial incentives to reduce compliance fees, say that the rule will suppress innovation and reduce the attractiveness of U.S. cryptocurrency exchanges.
- Jeremy Allaire, CEO of Circle, which operates the world's second-biggest stablecoin, USDC, wrote a letter on Dec. 9 mentioning some risks to the overall industry.
- U.S. Representative Warren Davidson (R-OH) also penned an open letter to the Treasury to consult with Congress about the changes. Davidson warned that "over-regulating self-hosted wallets" might end up destroying the entire industry.
- Brian Armstrong, CEO of San Francisco-based exchange Coinbase, responded to the U.S. Treasury Department's short period for public commenting in a blog post dated Dec. 21, 2020. Armstrong also shared the letter with FinCEN director Kenneth Blanco, suggesting that "there is no emergency" situation for the administration to react rashly to.
- Jack Dorsey, CEO of Twitter (NYSE:TWTR) and Square (NYSE:SQ), recently joined the critique of FinCEN's proposed regulations. Dorsey said that these actions would make U.S. crypto holders seek unregulated services abroad.
- Blockchain analytics company Elliptic offered a similar response to the proposal. Reportedly, the CEO of Elliptic, Simone Maini, pointed out that adverse outcomes of the regulations on unhosted wallets could have "opposite effects" on the crypto industry.
- The Digital Chamber of Commerce, a group that advocates the use of blockchain technology and digital assets, published a detailed report on the social, national security, and economic disadvantages of FinCEN's proposal.
- Venture capital firm Andreessen Horowitz (a16z) recently declared its opposition to FinCEN's actions by calling it "Secretary Mnuchin's midnight crypto rulemaking" and "a tyrannical rule" coming from an outgoing administration. Written by a former federal prosecutor, Kathryn Haun, the letter indicates a16z's intention to challenge the proposal in court if it becomes law.
Kelman Law
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Congressional response: - Eight Congress members published a letter regarding the short comment period on New Year's Eve and asked Treasury officials to extend the slot to six months. The letter, signed by Congressman Tom Emmer, seven other Congress members, and Sen. Tom Cotton, quotes FinCEN Director Kenneth Blanco.
- The congress members called the move a very "complex" notice that includes 24 sets of questions for which the Secretary of the U.S. Treasury Department should provide more time for consideration and proper review.
Federal Financial Institutions Examination Council
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- Mike Novogratz, billionaire and current CEO of Galaxy Investment Partners, spoke positively about the bitcoin and gold on Bloomberg.
- Former XRP (XRP) investors seek a writ of mandamus, a court order compelling the SEC to execute a legal duty, through a petition filed in Rhode Island District Court on Jan. 1, 2021, requesting the regulators not to consider the XRP held by the petitioners "securities."
- The total market capitalization of all cryptocurrencies combined surpassed $1T. Bitcoin is trading above $38,000 with a $700B market capitalization at the time of writing.
- PayPal (NASDAQ:PYPL) bitcoin volumes have increased more than 5X since November 2020, as indicated by Itbit (PayPal's cryptocurrency provider and exchange) on Jan. 6, 2021.
- U.S. cryptocurrency exchange Kraken announced on Jan. 6 that customers had staked a total of $1B worth of ether (ETH) and some other cryptocurrencies through the exchange's staking service, such as Polkadot (DOT), Cosmos (ATOM), and Tezos (XTZ).
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 |  | Curated by Associated Press fanboy, eye-strained news terminal watcher, and bitcoin follower since $1, Aaron Wise. Temporarily listening to news squawk boxes in Florida while awaiting the construction of cryptopia. | | | | Editor | Charlotte Hayes-Clemens is an editor and writer based in Vancouver. She has dabbled in both the fiction and non-fiction world, having worked at HarperCollins Publishers and more recently as a writing coach for new and self-published authors. Proper semi-colon usage is her hill to die on. | |
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