Cash App to Discontinue Fee-Free Bitcoin Transfers Amid Federal Scrutiny

Cash App, a popular mobile payment platform owned by Block Inc., has announced that it will end its fee-free Bitcoin peer-to-peer (P2P) transfer feature by December 20, 2024, amid growing concerns over regulatory compliance and potential risks associated with money laundering. This move follows months of federal investigations into the platform’s operations and the handling of cryptocurrency transactions.

Details of the Change

In a notice posted on its help page, Cash App confirmed that users would no longer be able to send and receive Bitcoin via $cashtags—the platform’s unique identifiers—by the specified date. However, the company clarified that Bitcoin transfers will still be available through the Lightning Network or directly on the Bitcoin blockchain.

This change seems to specifically impact Bitcoin transactions and does not extend to other services offered by Cash App, such as transferring stocks or sending cash through $cashtags. A Cash App spokesperson explained the decision, stating:

“We’ve notified customers that starting December 20th, we will no longer support peer-to-peer bitcoin transactions between $cashtags. We made this decision to focus our internal resources on the products and services that bitcoin holders on Cash App use and value most.”

Why the Shift?

The decision to phase out Bitcoin P2P transfers comes amid heightened scrutiny of Block’s compliance practices. In May 2024, reports surfaced suggesting that federal prosecutors were investigating Cash App over potential risks tied to money laundering prevention. Internal documents highlighted concerns that Cash App’s design made it difficult to block stored balances or reject funds once they had been moved, especially given that many users did not leave balances in the app for long.

Further investigations uncovered small transactions linked to entities in sanctioned countries, including Russia, Iran, Cuba, and Venezuela, raising alarms about the platform’s ability to enforce U.S. sanctions. In response, Block Inc. emphasized that its compliance measures mitigate these risks, particularly given Cash App’s primary U.S.-based customer base. The company also stated that it collaborates with law enforcement to disrupt illegal activities.

Cash App’s Crypto Revenue and Popularity

While the Bitcoin P2P transfer feature will be discontinued, Cash App has seen substantial success in its crypto offerings. For instance, in Q4 2023, the platform generated over $65 million in Bitcoin gross profit, marking a 90% year-over-year increase. This revenue boost underscores the growing role of cryptocurrency in Cash App’s overall business model, with crypto revenue making up a significant portion of Block Inc.’s total net income.

As of December 2023, Cash App boasted 56 million active accounts, though the company has not disclosed how many users are specifically utilizing its crypto services.

Federal Investigations and Compliance Concerns

The decision to end Bitcoin transfers by user tags comes several months after NBC News reported that Cash App had been under investigation by federal prosecutors over its ability to comply with financial regulations. Internal documents revealed concerns about small transactions involving individuals and entities in countries with U.S. sanctions, suggesting that Cash App may have inadvertently facilitated illicit activities.

In light of these developments, Cash App emphasized that the decision to end the Bitcoin transfer feature is not directly related to the ongoing investigation. The spokesperson reassured users:

“$cashtag transactions using U.S. dollars and all other bitcoin features, including the ability to send and receive bitcoin using Lightning and the Bitcoin Network, are not impacted by this update. We remain committed to building innovative, accessible products for customers who use bitcoin on our platform.”

Broader Implications for Block Inc.

This change represents a shift in Cash App’s strategy and its approach to cryptocurrency transactions, which could have implications for Block Inc.’s long-term crypto business. Cash App’s Bitcoin offerings, especially P2P transfers, were once viewed as a key differentiator for the app, offering users a seamless way to transact without incurring significant fees.

However, this move signals a narrowing of Cash App’s focus, as it adapts to regulatory pressures and aims to streamline its product offerings. It also raises broader questions about the regulatory challenges facing crypto companies in the U.S., especially in the aftermath of heightened scrutiny on crypto platforms and their compliance practices.

Challenges for Cash App and Block Inc.

This is not the first time Block Inc. has faced regulatory hurdles related to Cash App. In late 2021, the Financial Market Supervisory Committee of the Bank of Lithuania instructed Block’s European subsidiary to verify the identities of customers whose details were incomplete or failed to meet legal requirements for preventing money laundering and terrorist financing.

The recent decision to end Bitcoin P2P transfers underscores Cash App’s efforts to focus more on compliance and risk management while continuing to offer other crypto-related features. Whether this move will impact Cash App’s broader market position remains to be seen, but it clearly illustrates the growing tension between innovation in cryptocurrency services and the regulatory challenges that come with them.

Looking Ahead

As Cash App adjusts its offerings, its commitment to Bitcoin remains intact through other channels, including Lightning Network transactions. However, the discontinuation of P2P Bitcoin transfers serves as a reminder of the complex regulatory landscape that cryptocurrency platforms must navigate. Whether other platforms will follow suit or face similar challenges remains to be seen, but Cash App’s decision is a clear indication that compliance is becoming a key factor in shaping the future of crypto services.