Phoenix Wallet halts services for US users amid regulatory uncertainty

Phoenix Wallet, a Bitcoin (BTC) wallet designed for Lightning payments, has announced that it will stop serving U.S. residents on May 3. 

ACINQ, the company behind Phoenix Wallet, plans to remove the app from U.S. app stores, meaning users in the U.S. will no longer be able to access it from the said date. 

The company has advised its U.S. customers to withdraw their funds without delay. However, it cautioned against force-closing the wallets, as that could lead to higher on-chain fees. 

Instead, the company urged its American iOS users to go to the wallet’s settings page and hit “drain wallet,” Android users are advised to also go to the settings section and hit the “close channels” command to safely empty their wallets.

The official reason for pulling the wallet from U.S. app stores hasn’t been given. However, ACINQ hinted in a tweet that recent U.S. government statements raise doubts about whether self-custodial wallets, Lightning service providers, or even Lightning nodes might be considered Money Services Businesses and face regulation.

The company’s decision comes on the heels of legal action against the creators of Samourai, a Bitcoin mixing wallet. 

On April 24, federal prosecutors in the Southern District of New York announced that they had indicted Samourai Wallet founders Keonne Rodriguez and William Lonergan Hill.

Rodriguez and Hill accusing them of aiding illegal transactions through Samourai. Per the indictment, Rodriguez faces up to 20 years in prison, while Hill could face up to five years if convicted.

The U.S. Department of Justice alleges that Samourai’s creators allowed over $2 billion in unlawful transactions through the platform, collecting more than $4.5 million in fees since 2015. It also claims that Samourai was marketed as a tool for censorship resistance and facilitating illicit activities.

The arrest of Rodriguez was accompanied by a warning from the FBI to users about ‘operations’ on unregistered crypto firms believed to be money services businesses. This crackdown follows a pattern of U.S. authorities targeting wallets and mixers involved in what they deem to be questionable activities.

The indictments have provoked an outcry from the crypto community, with CryptoQuant CEO Ki Young Ju coming to the defense of Rodriguez and Hill, arguing that privacy protection is a fundamental aspect of Bitcoin. 

Ju compared the situation to punishing the inventor of a knife instead of the one who misuses it, emphasizing that the intent behind using a tool determines its legality.