Blockchain Capital Opposes FinCEN Rulemaking on Self-Custody Wallet Transactions

Joshua Rivera
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On Monday, January 4, we filed a public comment in response to FinCEN’s notice of proposed rulemaking that would require banks and money services businesses to collect, and in some cases report to the government, sensitive personal information in connection with certain crypto transactions with self-hosted (or as FinCEN refers to them “unhosted”) wallets.

For the past eight years, we at Blockchain Capital have been directly investing in the future of an open, free, fair and safe global financial ecosystem that allows for increased financial access and the flourishing of innovation. It has been a great joy to the see the industry evolve so extensively over that time. That evolution has also brought about the challenge of assessing how regulation should attach to this new technology and asset class. Meeting this challenge is a natural and important part of the maturation of a nascent industry. We firmly agree that combating money laundering, terrorist financing and other illicit financial activity is critical to the ongoing health and growth of an evolving financial infrastructure. However, regulations aimed at protecting our financial infrastructure must be appropriately tailored to effectively combat illicit activity while also protecting individual freedoms and promoting innovation. We believe FinCEN’s proposed rulemaking does neither.

In our view, FinCEN has made an alarmingly hasty and ill-considered rulemaking proposal. If implemented, the proposed rule will disproportionately infringe on individual rights of privacy and disenfranchise underrepresented populations in the US from the benefits of open financial access. Even more concerning is that the rule could result in actual harm to millions of users of digital assets by increasing cyber and financial crime, not combating it. These fatal deficiencies will cause both entrepreneurs and investors involved in building out this new technology to seek out jurisdictions that are more thoughtful and deliberate in crafting functional regulation. This would hurt US innovation and competition in what could be the future technological foundation for global finance and commerce.

We, along with many of the entrepreneurs behind our over 90 portfolio investments, are eager to engage with FinCEN and the Treasury Department to craft effective and measured regulation for decentralized systems. There are thousands of other industry participants who are hopeful to do the same. At present, however, the industry has not been granted a meaningful opportunity to do so. Providing a mere 15 days over the Christmas and New Year’s holidays for public comment on this immensely complex subject is woefully inadequate. For this reason, we have filed the attached letter requesting that FinCEN abandon its proposed rule.

Disclosures: The views expressed in each blog post may be the personal views of each author and do not necessarily reflect the views of Blockchain Capital and its affiliates. Neither Blockchain Capital nor the author guarantees the accuracy, adequacy or completeness of information provided in each blog post. No representation or warranty, express or implied, is made or given by or on behalf of Blockchain Capital, the author or any other person as to the accuracy and completeness or fairness of the information contained in any blog post and no responsibility or liability is accepted for any such information. Nothing contained in each blog post constitutes investment, regulatory, legal, compliance or tax or other advice nor is it to be relied on in making an investment decision. Blog posts should not be viewed as current or past recommendations or solicitations of an offer to buy or sell any securities or to adopt any investment strategy. The blog posts may contain projections or other forward-looking statements, which are based on beliefs, assumptions and expectations that may change as a result of many possible events or factors. If a change occurs, actual results may vary materially from those expressed in the forward-looking statements. All forward-looking statements speak only as of the date such statements are made, and neither Blockchain Capital nor each author assumes any duty to update such statements except as required by law. To the extent that any documents, presentations or other materials produced, published or otherwise distributed by Blockchain Capital are referenced in any blog post, such materials should be read with careful attention to any disclaimers provided therein.

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