The Mixer Rule is Dead, Long Live Outlawing Mixers
On the same day the US Treasury abolished a cryptocurrency mixer rule, SDNY weaponized a newly set precedent that could criminalize the use of financial privacy technologies.
This article was updated on Tuesday, Oct. 6th 2026 at 5:30 ET to clarify that the appeals court in US v. Sterlingov is the DC Circuit Court.
Yesterday, the US Treasury withdrew the so-called "mixer rule," which would have threatened the use of financial privacy tools in the United States.
It was a great day for privacy, you would think. Except that it wasn't. In fact, it's probably been some of the worst weeks for financial privacy that the United States has ever experienced. And almost nobody noticed.
On September 25th, the DC Circuit court ruled against the appeal of convicted Bitcoin Fog operator Roman Sterlingov, opining that all deposits made into the cryptocurrency mixer Bitcoin Fog can be deemed in furtherance of a criminal conspiracy.
As an Appeals Court decision, the opinion now sets precedent within the Circuit. Last night, just a little over a week after its publication, it was used against Tornado Cash developer Roman Storm.
It could mean that the United States might be able to charge anyone transacting with cryptocurrency mixers with conspiracy to commit money laundering.
"The transfer of funds to and from [a mixer] furthered [a mixer]’s ability to launder the funds of all users"
It was supposed to be the case to put blockchain tracing on trial. Instead, it just handed the US Government a major win against financial privacy technologies.
The decision against Sterlingov's appeal, who, among other things, argued that Washington D.C. was not the right venue for his prosecution, relied heavily on the argumentation that "every payment in[to Bitcoin Fog]" was part of advancing the criminal conspiracy because "it increases the size of the pool of bitcoin funds that are shuffling around and obscuring identities," as one of the judges opined in May.
Sterlingov had argued that Bitcoin Fog funds mapping to the district of D.C. only consisted of deposits made by an undercover agent, and which were withdrawn from the service within three days – therefore not materially furthering the conspiracy.
It's a similar argument Storm has been making in his Rule 29 motion, which is set to decide whether Roman Storm can be prosecuted in the Southern District of New York, the US Government now says.
In Storm's case, a Tornado Cash user had accessed the software from his Manhattan apartment, which the prosecution, in part, had relied on as reason to charge Roman Storm in New York. Funds that, just as in Sterlingov, were left with the protocol for just a short period of time.
As Storm's prosecution points out in last night's letter, there has been little authority on how material evidence needs to be on what establishes venue when engaging in a conspiracy. The DC Circuit now seems to have provided the court with an answer, or so SDNY claims, citing it's finding that:
"The government presented a plethora of evidence establishing that transfer of funds to and from Bitcoin Fog furthered Bitcoin Fog’s ability to launder the funds of all users."
SDNY now seems to argue that any funds sent to and from a cryptocurrency "mixer" or mixer-like procotol could be used to establish venue in a United States District Court – urging the judge to deem New York the proper venue.
"There was abundant evidence of the importance of increasing the number of deposits and withdrawals into the Tornado Cash pools via deposits from users, [...] to make the pools more effective for concealment purposes," SDNY says, arguing for the Sterlingov precedent to be authoritative in the court's decision against Storm's Rule 29 motion.
This is not the first time SDNY has argued that all funds within a mixer could be deemed illegal.
L0la L33tz
A Mixer Rule, But Worse
SDNY first claimed that the presence of criminal funds inside Tornado Cash privacy pools “dirtied” the funds of innocent users as they “helped conceal” the stolen crypto in a hearing last April.
Audible gasps filled the court room, as it would mean that all funds within financial privacy technologies like Tornado Cash become illicit upon entering.
SDNY maintained that all funds in Tornado Cash could be deemed illegitimate, because they helped the service to "conceal" proceeds – even if only a percentage of said funds came from actual criminal activity. In Storm's case, SDNY argued, any improvement he made on the protocol therefore constituted a criminal act, that should be charged in New York.
At the time, Judge Failla asked whether the prosecution was "suggesting that maintaining [Tornado Cash] knowing that there are bad actors and that there are good actors who are perhaps hiding the bad actors unwittingly is willful conduct on the part of Mr. Storm?", advising Assistant US Attorney Ben Arad that he had done better before he started talking.
"Windows makes improvements to improve functionality, to perhaps change the screen so I can have it look more to my liking, and I, as [a] non-criminal, may find these developments to be beneficial and in fact useful, and some criminal may like to choose his background colors, as well. It can't be that improvement to a website on that level that benefits good and bad actors equally matters," she said.
At the time, it appeared that Judge Failla was not particularly persuaded by the argument that all funds in Tornado Cash should be deemed illicit.
With DC Circuit's opinion, Arad's talking may have just paid off: because a binding precedent now finds that funds deposited into a mixer-like protocol have indeed contributed to the concealment of illicit proceeds.
If taken at face value, it could mean that the US Government might be able to charge anyone depositing funds into a mixer-like technology with engaging in a conspiracy to commit money laundering, even though a protocol like Tornado Cash and a centralized mixer like Bitcoin Fog are substantially different technologies – as they both rely on the use of a variety of funds to conceal the origin of transactions.
L0la L33tz
The Mixer Rule is Dead, but Regulation by Enforcement Lives On
During the Biden administration, the Financial Crimes Enforcement Network (FinCEN) proposed a rule that would have classified cryptocurrency mixing involving foreign transactions a so-called "primary money laundering concern," requiring financial institutions to report foreign transactions to the US Government.
As CoinCenter pointed out, FinCEN's definition of cyptocurrency mixing was so overly broad, that it swept in "common techniques used by ordinary cryptocurrency users to preserve their privacy."
The immediate consequence of such a rule, as CoinCenter states, would have been the reporting even of domestic transactions. At the same time, many financial institutions may have outright banned any coins stemming from private transactions to avoid bureaucratic overhead.
In 2025, the White House had tasked the Treasury to finalize the mixer rule. A few months later, FinCEN Director Andrea Gacki told Congress that it was working on the finalization of the rule to combat illicit activity carried out with cryptocurrency. The CLARITY Act contained a similar rule that would have expanded the PATRIOT Act to cover cryptocurrency transactions.
Now the mixer rule is pulled, and the CLARITY Act is dead. But if the prosecution of Roman Storm is allowed to continue under such argumentation; and without clear protections for developers and users of financial privacy technologies – ones that go beyond the lip service of agency officials – mixer-like technologies may be even further criminalized than even the mixer-rule originally intended.
Much to the contrary of claims made by numerous US Government officials in recent months, regulation by prosecution seems to be alive and well.
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