Claiming that decentralized cryptocurrencies like Bitcoin are used for "money laundering" and other "illegal" activities, Trump gave the Department of the Treasury the green light to implement tracking and surveillance systems to monitor who owns Bitcoin and how it is being spent.
"After President Donald Trump lost the election, the Treasury Department raced to issue the rules, which fell under its Financial Crimes Enforcement Network or FinCEN," writes Joe Light for Bloomberg.
"The move generated thousands of negative comments and drew the threat of a lawsuit by a crypto trade group – prompting a last-minute reprieve that pushed the final decision to the Biden administration and Treasury Secretary Janet Yellen. There's no timetable for when a decision will be made."
Light adds that Bitcoin users whose wallets are currently only identifiable with "codes" would have their true identities recorded with the government. K Street, Wall Street, the U.S. Chamber of Commerce, mutual fund giant Fidelity Investments, and venture capital firm Union Square Ventures are all fighting the potential new rules.
Should Yellen move forward with Trump's rules, cryptocurrency services are expected to become more costly. Some cryptocurrencies themselves could eventually disappear entirely.
As for Bitcoin, Matthew Maley, chief market strategist for Miller Tabak & Co., says its price could fall sharply, though he expects that Bitcoin will still increase in price for the long haul.
"Bitcoin is very risky and very volatile and it's going to continue to be that way," he is quoted as saying. "If you add something like a new regulation, it's going to be very vulnerable to a correction."
Cryptocurrency exchanges would be required under Trump rule to report $10,000 and greater cryptocurrency movements
One part of the FinCEN proposal would require that cryptocurrency exchanges report all money transfers of $10,000 and more to the Treasury. Banks already send such reports under anti-money laundering rules whenever a customer withdraws $10,000 in cash from the bank.
A second part of the proposed rule would require banks and exchanges to keep a record whenever a customer sends $3,000 worth of virtual currency to someone else's non-hosted wallet.
"The record would have to include the identity of the counterparty, something that Bitcoin advocates said would be expensive and sometimes impossible to verify," Light explains.
Similar efforts were attempted at the beginning of Trump's presidential reign. The goal has always been to eliminate the anonymity component of Bitcoin and absorb it into the existing financial system, which goes against everything Bitcoin was originally designed to escape.
Normally, these types of rules would have to undergo a lengthy public process involving many months of feedback and revisions. The Trump administration, however, only allowed 15 days for comment after the rule was published on Dec. 18.
Very few people even knew about it, while most others were busy with Christmas and New Year's plans. Even prominent Bitcoin advocates were caught off guard because of how quickly the proposal was unveiled.
After learning about the proposal, crypto advocates flooded FinCEN with about 7,600 public comments in opposition to its implementation.
The digital rights advocacy group Fight for the Future even set up a "Stop Financial Surveillance" website that warned about how FinCEN's proposal would "facilitate extremely intense financial surveillance on an unprecedented scale."
According to product director Dayton Young, the site, which contains an easy web form for users to send comments to the Treasury, has so far been used more than 3,000 times.
"I don't think that Bitcoin – I've said this before – is widely used as a transaction mechanism," said Yellen at an online event indicating her support for more restrictions. "To the extent it's used, I fear it's often for illicit finance."
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