Two prominent self-custodial wallet providers, Acinq's Phoenix Wallet and zkSNACKs' Wasabi Wallet, have announced their decision to discontinue services for users in the United States. This move comes in response to the recent regulatory actions taken against Consensys, the creator of MetaMask, and Samourai Wallet, a cryptocurrency mixer.

The crackdown on these major self-custodial wallet providers has raised concerns among other crypto service providers operating in the US. Acinq and zkSNACKs have expressed doubts about the regulatory status of self-custodial wallet providers, questioning whether they can be considered legitimate money service businesses under the current regulatory framework.

In a statement released on April 27, zkSNACKs announced that it is now "strictly prohibiting U.S. users from using its services." Similarly, Acinq, in an X post on April 26, explained that "recent announcements from US authorities cast a doubt on whether self-custodial wallet providers, Lightning service providers, or even Lightning nodes could be considered Money Services Businesses and be regulated as such."

To ensure a smooth transition for their users, Acinq has given Phoenix Wallet users until May 2 to adjust to the upcoming changes. The company advised users to drain their wallets but cautioned against "force-closing" them, as "on-chain fees could be significant." On the other hand, Wasabi Wallet implemented its new policy "effective immediately."

The regulatory actions that prompted these decisions include the U.S. Securities and Exchange Commission (SEC) issuing a Wells notice to Consensys on April 10, warning of potential enforcement actions related to its MetaMask Swaps and MetaMask Staking products. The SEC allegedly stated in a phone conference that Consensys was operating as an unregistered broker-dealer.

Just a day earlier, on April 24, the co-founders of Samourai Wallet, Keonne Rodriguez and William Hill, were arrested on charges of money laundering brought by the U.S. Justice Department and other agencies. They each face one count of conspiracy to commit money laundering, with a maximum sentence of 20 years in prison, and one count of conspiracy to operate an unlicensed money transmitting business, with a maximum sentence of five years in prison.

The crackdown on self-custodial wallets stems from the argument made by regulators worldwide that these wallets may facilitate illicit activities such as money laundering. However, the crypto community has long advocated for the importance of self-custody as a means of maintaining financial sovereignty and privacy.

In contrast to the actions taken by US regulators, European regulators have recently relaxed potential proposed regulations concerning self-custody wallets. On March 23, a majority of the European Parliament's lead committees scrapped a 1,000 euro ($1,080) limit on crypto payments from self-hosted crypto wallets as part of new anti-money laundering laws. However, crypto exchanges must still perform due diligence, such as identity verification checks, on users who carry out business transactions of at least 1,000 euros.

The exit of Phoenix Wallet and Wasabi Wallet from the US market highlights the ongoing regulatory challenges faced by the cryptocurrency industry. As regulators grapple with the complexities of this emerging technology, it remains to be seen how the landscape for self-custodial wallets and other crypto services will evolve in the coming months and years.

The decision by these wallet providers to cease operations in the US underscores the need for clear and consistent regulatory guidance that balances the need for consumer protection with the principles of financial freedom and innovation that underpin the cryptocurrency movement.