Crypto is entering a new era of relevance in mainstream political discourse.
The compromise amendment to the crypto provision in the infrastructure bill was shot down in the Senate yesterday. On this episode of “The Breakdown,” NLW covers what’s happened, what’s next and what it all means, including:
- The compromise’s demise
- Crypto’s newfound relevance in political discourse
The compromise – proposed by Senators Lummis and Toomey, and backed by Treasury Secretary Janet Yellen – was rejected by a single senator. The amendment would have required unanimous consent but was tanked by Alabama Republican Sen. Richard Shelby over an unrelated dispute on additional military funding.
The bill now moves to the House where it will be deliberated more, though it is unclear how much room there will be for modifications once it gets there. Emerging crypto-friendly lawmakers continue to push to improve the broker definition within the provision.
The infrastructure bill saga represents the first act in crypto entering the highest echelons of political discussion in the U.S. Instead of pushing quiet legislation through, this crypto provision gave the industry an unprecedented platform and relevance in the eyes of lawmakers. Will crypto be a key issue for lawmakers in the future?
The Breakdown is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Tidal Wave” by BRASKO. Image credit: Chip Somodevilla/Getty Images News, modified by CoinDesk.
What's going on guys? It is Tuesday, August 10 and here we are, something like 11 days after we first heard about the crypto provision in the infrastructure bill, and we appear finally to be at the end of this first act. I call it a first act because as you'll see, while the specifics of this provision matter greatly, it seems likely to me that the real significance of the last week and a half goes far beyond any one bill. Instead, it's about a new era of crypto entering the mainstream political discourse. Where we left off yesterday was that the authors of two competing amendments, Wyden, Toomey, and Lummis on the one hand, Warner, Portman, and Sinema on the other, were furiously engaged trying to find compromise language. Remember, the one chance we had to get something through was that one, we had to find compromise language that was acceptable to all; and two, get unanimous consent to add the language as an amendment.
This unanimous consent thing is nuts. And please remember, as you apportion your ire around all of this, that the reason the amendment couldn't be voted on normally was that majority leader Chuck Schumer had decided to disallow all amendments. The air on Crypto Twitter was thick with tension, and then, around 12:30, step one was complete. We got that compromise amendment. Senator Lummis tweeted, "We've been working all weekend to come up with a compromise to address the digital asset broker issue in the bipartisan infrastructure framework. While it's not perfect, it protects innovation and doesn't choose winners and losers." The author of the original provision, Rob Portman, tweeted, "I'm pleased to announce that Senators Warner, Toomey, Sinema, Lummis and I have reached an agreement on an amendment to clarify IRS reporting rules for crypto transactions without curbing innovation or imposing information reporting requirements on stakers, minors or other non-brokers."
The question of course, was would there be enough support in the Senate? Well, one factor helping that along was at the Treasury Department, who had been the not-so-invisible hand behind so much of this from the original idea for the provision to the fight against the Wyden, Toomey, Lummis amendment last week, gave it its blessing, although doing so still couching this, like its primary purpose was to fight crypto tax evasion, rather than give itself sweeping powers. The Secretary of the Treasury Janet Yellen released a statement saying quote, "I'm grateful to Senators Warner, Portman, Sinema, Toomey and Lummis for working together on this amendment to provide clarity on important provisions in the bipartisan infrastructure deal that will make meaningful progress on tax evasion in the cryptocurrency market. I'm also thankful to Chair Wyden for his leadership and engagement on these important issues."
Now, Jake Chervinsky pointed out that the fact that Treasury was this involved was itself pretty dubious. But, that was a different battle for another time. He wrote, "We need to have a longer conversation about why Congress is delegating its legislative power to unnamed, unelected officials in the Treasury Department. But that can wait until after the vote on this amendment." At 3:30 Eastern Time, senators headed down to the floor. A few made speeches in support of the amendment, but not an hour later, the dream was dead. Jake Chervinsky again, Senator Richard Shelby, Republican of Alabama has objected to the compromise amendment. He didn't get his own amendment for $50 billion in defense spending so he's against all others. Unless he changes his mind, that's it. Compromise amendment is dead. FYI, he's retiring at the end of this term." The frustration was palpable. Jack Dorsey tweeted: "Amendment killed to get more military spending. Wow." Neeraj from Coin Center, "Tanked it to grab for more military spending."
So the TLDR on what actually happened procedurally is that Shelby wanted to add his amendment for more military spending. Bernie Sanders said that he would oppose it if it was added, Shelby wouldn't yield and couldn't get what he wanted. And so it was dead. Ted Cruz tried to make a last ditch effort to just strike the thing entirely. His speech was surprisingly salient. So let's give a clip a listen.
"The current bill widens the definition of broker. Those who would have to collect information on cryptocurrency consumers and report this information to the IRS, it would force every single participant in the cryptocurrency structure to operate as a financial institution, which would mean they would have to provide consumer info to the IRS, even if they don't have access to the information. This overly broad definition of the word broker will block rapid innovation in cryptocurrencies. And it will endanger the privacy of many Americans and cryptocurrencies. This is wrong. So I applaud my colleagues for trying to find an incremental approach. Unfortunately, because the Senator from Vermont objected, that incremental approach hasn't been adopted. So let's exercise a brief, shining moment of common sense. And let's recognize if we gathered all 100 senators in this chamber, and ask them to stand up and articulate two sentences defining what in the hell a cryptocurrency is, that you would not get greater than five who could answer that question. Given that reality, the barest exercise of prudence would say we shouldn't regulate something we don't yet understand. We should actually take the time to try to understand it, we should hold some hearings, we should consider the consequences. We shouldn't destroy people's lives and livelihoods. From complete ignorance."
I like that line, "the barest exercise of prudence." There would be no prudence exercise this day, Senator Toomey as well castigated his colleagues saying, "We're going to ask these people to provide information they don't have that they can't get, in what universe does that make any sense at all? All I want to do is have a vote on an amendment that fixes this in a way that has bipartisan agreement, in a way that constrains this to apply narrowly to the people who actually are the intermediaries running a centralized exchange who have this information. But apparently, we're not going to be able to do that. So we'll be back on this. Because we're going to do a lot of damage. Who knows how much innovation is going to stifle? Who knows exactly what kind of new apps will never emerge? You know, it's hard to predict with some kind of completely impossible mandate results in but it's not good. And it's going to bring us back you're having to try and clean up a mess which we could have prevented. I yield."
In addition to the palpable frustration, there was some quick argument that the blockage was not just about defense spending, but had a much more personal bent to it. Ryan Selkis wrote: "Source in DC: Senator Shelby's objection has nothing to do with defense provisions, but rather Wall Street objections where he has deep donor ties. He's retiring and wants to play staffers in high paying jobs upon exit." Before you dismiss Ryan as a conspiracy, don't forget, he was the one who broke the Mt. Gox story when no one else was reporting it. What's more, public records show that Shelby's top donors over the last five years have been commercial banks and securities and investment companies. In his next tweet, Ryan asked Katie Boyd, Shelby's former chief of staff and a candidate to take his seat, for her commitment and boy did it not take long. First she tweeted, "I support American innovation and entrepreneurship, including in the crypto space and want to see the digital asset broker issue clarified in a way that ensures that the federal government is not putting their thumb on the scale. We should be encouraging competition here in America and not driving economic activity overseas. She then uploaded a video going even farther.
"Hey everyone, been traveling the state today and got some questions on Twitter about where I stand on the Toomey amendment. So, if the current infrastructure bill is going to pass, it must have the Toomey amendment. Without it the demands that we place on the crypto ecosystem will drive jobs and innovation and security overseas, we have to make sure to keep those things at home. So rest assured, I will always be a voice for innovation and prosperity here in America."
There is some word that Katie spent yesterday working hard behind the scenes to get her former boss to change his mind before the actual vote today. So, perhaps we're in for a surprise. However, in either case, it is absolutely undeniable what the legacy of this fight will be. Neeraj tweeted, "Well, if they didn't know we were here before they definitely do now." The ‘we’ is not only the individuals who will speak to us in just a minute, but this coalition of politicians who are supporters who feel like they have new information, new energy and a new mandate. Senator Lummis tweeted: "This is why we started the financial caucus, to educate those who are going to make decisions that affect this industry. If we keep pressing forward without understanding the implications of our actions, we're going to fall further behind China in financial innovation. We must prepare now for the next time we go up against the anti-innovation crowd. We must engage early, build coalitions, shed light on the actors who are working to stifle innovation and maintain the status quo." She also said: "The silver lining is we found out who in the Senate is interested in the subject who maybe previously didn't know anything about crypto, we were finally able to illustrate that there's a lot of people interested in digital assets and now have contact with their Senator."
Still, the bigger deal by far is the loudness of the crypto community. 40,000 calls, an entire industry watching C-SPAN on the weekend. This isn't normal. This is what happens when you get a group of people who have utter conviction that they are part of a generationally significant shift involved. And to be clear, this cohort has only barely gotten started. This was, as Myles Souter put it, in a quote from yesterday's show, "a fight from within a cage," a sucker punch that we just had to do our best to deflect. Neither an iota of the true organizational potential, or frankly, the wealth available to advocate on our behalf, has been deployed in service of clear pro-crypto policy objectives.
It was Saturday evening watching a speech from Senator Mike Lee hammering many of these same themes from Cruz's speech earlier, that I realized something profound and much bigger than the actual amendment fight was happening. When the Treasury Department via its senatorial allies tried to dupe this crypto provision into must-pass legislation. They thought they were going to pull a fast one on us, getting both the on-paper budgetary resources they needed to move the bill forward, while giving themselves wide-ranging powers to do as they saw fit in the crypto industry. Instead, they radically, and I mean radically, increased the relevance and profile of the crypto space. If this had just been about crypto legislation, it wouldn't have had a 10th of the coverage it got, and probably even less than that. Instead, the way that they tried to squeeze this out made it the central issue of the biggest non-COVID legislation the Biden administration is trying to pass, legislation that has roots and false starts over to previous administrations.
I'm going to make a literary analogy and spoiler alert, if you haven't read the Harry Potter books and intend to, skip about the next minute. The central crux of Harry Potter is that the big baddie, arch evil wizard Voldemort hears a prophecy that a baby boy will be born in the middle of the summer in a specific year and will rise to challenge him. Neither the boy nor Voldemort can live while the other survives. They are destined to be locked in conflict till one wins and finishes the other for good. That's why Voldemort tried to kill Harry when he was just an infant. We find out later, however, via Professor Albus Dumbledore, Harry's mentor and the leader of the resistance against Voldemort, that there were in fact two wizard boys who were born who could have qualified, Harry pleads with Dumbledore saying, "can it still be the other guy?" And Dumbledore says "no, when Voldemort came after you, he marked you as his equal." He basically self fulfilled the prophecy that Harry could rise to challenge him.
That is exactly what the Treasury Department just did with the crypto industry. They put crypto on the center stage, they tried to exert a power that a significant number of people did not think they should have. They tried to strangle innovation in the cradle, and instead, the way things played out, they accidentally marked us as their equal, and made us stronger, I think than ever before.
Less than an hour after everything ended in the Senate, Representative Tom Emmer and his colleagues in the Congressional Blockchain Caucus sent a letter to all their colleagues asking them to fix the crypto pay for, the letter goes through exactly what's wrong, why it needs to change and leave with this note to show their exact priorities for the fall: "Cryptocurrency tax reporting is important, but it must be done correctly. When the infrastructure investment and jobs act comes to the house, we must prioritize amending this language to clearly exempt noncustodial blockchain intermediaries and ensure that civil liberties are protected."
This is the end, but it's the end of act one. And instead of a cowed, weakened crypto industry on the verge of assimilation into the Treasury Board, there is a fierce new focus and determination, and a recognition of the real challenges that lie ahead. I couldn't find the exact tweet but someone said I don't think we'll see a politician again without a crypto strategy. And I genuinely think that that might be true. For now guys, I'm looking forward to covering something other than this, but I appreciate you hanging out on the journey. Until tomorrow, be safe and take care of each other. Peace!