The bipartisan bill contains potential impacts to crypto intermediaries.

This episode is sponsored by NYDIG.

First, on the Brief:

  • U.S. growth last quarter performing under economists’ expectations
  • Robinhood's subdued IPO debut
  • "Wild amounts" of capital going into crypto

In the main discussion, NLW addresses the specifics, reactions and potential impacts of a crypto provision within the Biden administration’s big infrastructure bill. A draft copy of the provision aims to raise $28 billion via a crypto tax, imposing new reporting requirements for a broad swath of crypto intermediaries.

Potentially, intermediaries from wallet developers to miners will be impacted by the provision. If this draft of the bill makes it to a vote, how will a tax scheme impact crypto development and adoption? Is this provision just a messy step in a positive U.S. government acceptance of crypto or a dangerous damping factor on progress?

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 “Only in Time” by Abloom. Image credit: rarrarorro/iStock/Getty Images, modified by CoinDesk.


What's going on guys, it is Thursday, July 29 and today we are talking about a dangerous $28 billion crypto provision that was stuck into the infrastructure bill at the last minute. First up, however, let's do the Brief. First, on the Brief today, economist estimates of GDP growth in the U.S. were way off. Last quarter, the economy grew at a 6.5% annual rate. Economists were expecting 8.4% obviously, this is a huge disparity. Now it kind of reminds me of a couple weeks ago when investors started to get nervous that China's less than expected growth could be a portent of what was coming for Western countries recovering from COVID. The spin however, is that this remains an issue with supply chains and inventory, not demand, household spending and personal consumption grew at 11.8%, the second-largest advance since 1952. Given that, many believe that if the supply chain starts to get more sorted, Q3 could see that 8% GDP growth. Ultimately, in many ways what matters is the interpretation more than the headline statistics. So we'll keep an eye on if and how that interpretation changes. 

Next up on the Brief today, Robinhood limps across the IPO finish line. What had originally been one of the most anticipated IPOs of the year is turning out to be much more subdued. Underwriters of Robinhood price the shares at $38, at the bottom of the range they had been targeting. This puts Robinhood's valuation at $32 billion, which is amazing growth from the $12 billion private round they raised last year, but still lower than many anticipated. The platform will hit NASDAQ today with the symbol HOOD. Interestingly, Robinhood sold a slew of its IPO shares to users, which makes it even harder than normal to know what will happen. The big thing that took the edge off of Robinhood, though, is just how embattled it's been with users who felt betrayed by decisions earlier in the year to halt trading. It has also been absolutely be set by regulatory action. It just got a new request this week for information from FINRA and that comes after millions and settlements with other various agencies. 

Last on the Brief today, I discussed last week how much capital is flowing into crypto and that shows no signs of slowing down. Frank Chaparro from The Block tweeted "At least 10 crypto projects announced a fundraise today, absolutely wild amounts of capital pouring into the private market for crypto." Frank points out a $25 million Series A for Vault, led by Peter Thiel's Valar Ventures. Another $20 million for Livepeer, which is an Ethereum-based video streaming platform, an AlchemyNFT SAFT that Mark Cuban joined, a $125 million raise for Genesis to scale bitcoin mining operations and so much more. The point is just that if you have any doubt about whether private market investors still think crypto is a hot market, you should not. It is and they are putting their money where their mouth is.

With that, let's move to our main discussion and this is one where really the headline of the show says it all. As you're probably aware, at least in the United States, the big legislative agenda has been all about a massive infrastructure bill. This is an absolute centerpiece of the Biden agenda, but also addresses issues that many Republicans are concerned with as well. The issues in the bill are things like building roads, more support for public transit, better broadband access, and the fiercest debates have been around the price tag of the bill and how it's going to be paid for. The latest version is a $550 billion bill which is down from the $579 billion that negotiators had originally targeted, but, when other expected funding for transportation projects is factored in, the total amount will actually probably exceed $1 trillion. The newest version of the bill has passed a key test after a month of negotiation, the Senate voted 67 to 32 to begin debate on the bill. Dems needed 10 Republican senators to sign on to break a filibuster and ended up with 17. Now, one person who is not pleased with the deal is old Donnie T. In repeated statements over the last few weeks, his opposition has been clearly about politics more than anything else. This morning, he released a note that said: "Hard to believe our Senate Republicans are dealing with the radical left Democrats and making a so-called bipartisan bill on infrastructure, with our negotiations headed up by super Rhino Mitt Romney. This will be a victory for the Biden administration and Democrats will be heavily used in the 2022 election. It's a loser for the USA, a terrible deal and makes the Republicans look weak, foolish and dumb."

Anyway, regardless, the bill seems pretty well on its way at this point. In fact, Senate leaders are saying that the Senate is staying to work this weekend to get the final deal done. So good stuff, right. I mean, infrastructure is important, a bill to get infrastructure done that doesn't raise taxes to crazy levels seems like a win, yeah? A landmark piece of legislation that actually has bipartisan support. I mean, is the country actually back to functioning? But wait just one minute, CoinDesk yesterday reported that the new bill is looking to raise $28 billion from crypto investors by imposing new reporting requirements on a variety of crypto intermediaries, including exchanges and more. Here's what CoinDesk wrote. "According to a draft copy of the bill shared with CoinDesk, any broker that transfers any digital assets would need to file a return under a modified information reporting regime. The draft defined digital assets as any digital representation of value recorded on a cryptographically-secure distributed ledger or related technology. It also includes decentralized exchanges and peer-to-peer marketplaces in its definition of brokers. The document said quote, 'the provision includes updating the definition of broker to reflect the realities of how digital assets are acquired and traded. The provision further makes clear that broker to broker reporting applies to all transfers of covered securities within the meaning of Section 604, including digital assets.'"

Additionally, digital assets are added to the current rules requiring businesses to report cash payments over $10,000. Kristin Smith, the executive director of the Blockchain Association, explained further who some of these new requirements would apply to saying, quote, "We interpret this to mean software wallet developers, hardware wallet manufacturers, multisig service providers, liquidity providers, DAO token holders and potentially even miners." If you're getting a sense that there could be some issues, you're right. Here's how Jerry Brito, the executive director of Coin Center sums it up: "The new bipartisan infrastructure bill and senate includes new tax reporting obligations for crypto. Unfortunately, in the drafts, we've seen the categories of persons who would be obligated to report is so broad that it potentially covers persons who only provide software or hardware to customers, and who have no visibility whatsoever into user transactions. It potentially also covers miners' indexes, the saving grace is that arguably miners' indexes for that matter do not have customers as defined by the tax code. We've been engaged with the relevant staff who worked on this over the past few months. But the problem is that this language was a last minute addition to the must pass bill. We worked all day yesterday trying to fix it and we'll continue to do so today. Stay tuned."

Jake Chervinsky, who has long been one of the crypto legal course's more thoughtful voices, has taken a bit of a bleak turn in recent weeks. He writes about this bill, quote, "We're dealing with a serious situation in DC." As Jerry explains "the infrastructure bill has a provision that could be very bad for crypto, forcing non-custodial actors, maybe including miners, to comply with IRS tax reporting obligations. More on this when the bill is public." Neeraj from Coin Center adds a little bit more saying: "The infrastructure bill includes a last-minute addition of extremely broad crypto language, so broad that it might obligate software wallet providers and others who don't have visibility into their users' behavior to report on their quote unquote customers." Nik from CoinDesk also shared this specific section of the document that they had received. It's about an expansion of the definition of broker in the tax code to include quote, "Any person who for consideration regularly provides any service or application, even if non custodial to facilitate transfers of digital assets, including any decentralized exchange or peer-to-peer marketplace." 

Okay, so let's try to untangle this. Is this all crypto blustering and getting geared up to fight FUD that it shouldn't actually be worried about? Some have argued that this is just the messy process of crypto becoming formally embraced as a part of the financial system Compound's Robert Leshner tweets, "This is long-term super positive. As much as taxes suck, once the U.S. government realizes the crypto can pay for infrastructure, it's going to be way less tempted to squash it. Key step to going mainstream slash permanent." I don't disagree that the deeper crypto gets in the system and the more clearly it fits in the regulatory regime, the less likely it is for legislators and regulators to try to kill the thing outright. But the issue here isn't people not wanting to be taxed. It's reporting requirements that treat network actors who are nothing like the intermediaries from the traditional system as financial intermediaries who should be keeping an eye on other network participants, Jake Chervinsky again says: "I fundamentally reject the idea that regulators can lawfully force citizens to spy on each other's financial transactions and report them to government without a warrant. If a dystopian surveillance state of this sort is constitutional, the Fourth Amendment will have lost all meaning." Viktor Bunin from Bison Trails says something similar. "Every time I read the phrase 'un-hosted wallet' I get hives. Is the cash I hold in my wallet, also an un-hosted wallet. This assumption that people can't hold their own money and must be managed, surveilled and controlled by financial institutions is anathema to free persons." 

So, here's my argument, I think that we should absolutely not be pollyannaish about the threat of this provision that is not about not wanting to get taxed on crypto, and it's not even about there being no reporting requirements. It's about properly defining a new type of system and a new type of financial infrastructure, where people in companies running nodes and confirming transactions are integral to that system. In almost all cases, these compliance requirements would be impossible on the basis of the way these systems are designed. The implication of this is that if every miner and node operator and liquidity provider and every other actor in a decentralized system, all of a sudden has these reporting requirements, it seems almost inevitable that the only way to actually operate a public blockchain will be by taking a legal action. So yeah, it's a big deal. Can it be fixed? One certainly hope so. Representative Tom Emmer responded to one flustered tweet and said that he was quote "on it." He also retweeted the CoinDesk piece saying "Bottom line, trying to offset the infrastructure package's out of control spending on the backs of everyday crypto investors and innovators will do nothing but leave our country in the dust." This is as developing a story as developing stories get, so I'll be sure to keep you updated as things shift. But for now, I appreciate you listening. I appreciate you paying attention to this sort of issue. And until tomorrow, guys, be safe, take care of each other. Peace!