The U.S. Congress has been talking about crypto for years, and we’re finally getting a sense of what sort of regulations lawmakers might enforce. The biggest issue is a controversial tax provision in the Senate’s infrastructure bill.
What a week. Seven days ago, the biggest thing on my radar was a trio of congressional hearings on crypto. By Thursday, we had two massive bills seeking to enforce regulations on the industry in different ways. The first bill, the Senate’s trillion dollar bipartisan infrastructure effort, would broaden the definition of a “broker” to capture all sorts of entities for the purposes of crypto tax collection. The second, by Rep. Don Beyer (D.-Va.), is much more of a long shot, but is the most comprehensive effort to regulate crypto yet.
Why it matters
The infrastructure bill has sparked controversy in the crypto world because of just how broad its definition of a “broker” originally was. A revised version, and the one that’s in the actual bill introduced late Sunday, tones the definition down a tiny bit in that it no longer explicitly includes decentralized exchanges as brokers. But it doesn’t explicitly exclude crypto miners or node operators, either.
The main takeaway is that crypto has gotten on lawmakers’ radar as an industry that is permanent enough to help fund the government.
Breaking it down
Okay, so the plus side for the crypto industry is that the attention lawmakers are giving it is a recognition that crypto is not just a casino that’s going to disappear when traders get bored. Congress clearly expects this industry to stick around long enough to generate at least $28 billion in tax revenue for the infrastructure bill. It’s arguably the most concrete recognition of crypto from Congress, and yes, I’m including all of the hearings Congress has hosted in recent months.
The downside is the confusion over just who exactly must file information reporting documents. Exchanges and over-the-counter trading desks should have no difficulty complying, and the fact they’ll even be directed to a specific form to fill out may even make it easier for these trading platforms in lieu of clear guidance from the Internal Revenue Service on the matter.
The problems arise when we look at decentralized exchanges, node operators, miners, etc. It’s less clear how they would comply.
The Joint Committee on Taxation (JCT), which “scores” provisions, meaning it evaluates how much would be raised through the provisions, published a document stating the figure of just less than $28 billion, but didn’t actually say where the number came from. In other words, there’s no information right now on how the JCT expects these entities to report.
“It was inevitable” that brokers and dealers, registered exchanges and OTC desks would have to comply with these types of reporting standards, former lobbyist Reid Yager told me.
“Whether this year, in five years, they were going to get captured,” Yager said. “The fact that ‘broker’ could be interpreted to expand to software developers and providers, that’s an issue.”
We know that there’s bipartisan opposition to the specific wording of the provision in the infrastructure bill – Sen. Ron Wyden (D.-Ore.), chairman of the Senate Finance Committee (which oversees the IRS), as well as Sens. Patrick Toomey (R.-Penn.) and Cynthia Lummis (R.-Wyo.), who are both on the Senate Banking Committee – have all publicly stated that they don’t see the current definition as being feasible to implement.
The almost odd part is Sen. Rob Portman (R.-Ohio), who is behind the specific amendment, doesn’t intend to capture noncustodial entities like miners, according to a spokesperson for the senator.
“This legislative language does not redefine digital assets or cryptocurrency as a ‘security’ for tax purposes, impugn on the privacy of individual crypto holders or force non-brokers, such as software developers and crypto miners, to comply with IRS reporting obligations. It simply clarifies that any person or entity acting as a broker by facilitating trades for clients and receiving cash must comply with a standard information reporting obligation,” said Drew Nirenberg, the spokesperson.
At this point, however, it doesn’t seem like Portman is willing to put that kind of language in the infrastructure bill itself or in supplementary material that the IRS can point to in implementing the proposal.
So we now get about a week to see what amendments are offered and whether they’re accepted.
And then there’s the House of Representatives, which most likely won’t take the bill up until the fall and whose members may have their own issues with the bill (both crypto-related and not).
If the general public is interested in providing feedback, they should reach out to their elected officials, says Kristin Smith of the Blockchain Association, Perianne Boring of the Chamber of Digital Commerce and Michelle Bond of the Association for Digital Asset Markets.
Changing of the guard
Dave Uejio, acting director of the Consumer Finance Protection Bureau (CFPB), will face his confirmation hearing for the position of assistant secretary of the Department of Housing and Urban Development on Thursday. Rohit Chopra – his potential successor at the CFPB – appears to still be awaiting a final confirmation vote.
- Who in Crypto Met With Brian Brooks When He Ran OCC? Here’s His Calendar: This is an excellent deep dive by my colleague Nathan DiCamillo, who filed a Freedom of Information Act request with the Office of the Comptroller of the Currency for former Acting Comptroller Brian Brooks’ calendar. Brooks, now the CEO of Binance US, met with crypto industry participants 40 times during his time at the OCC.
- Kentucky Orders BlockFi to Stop Signing Up New Interest Accounts: A fifth state, Kentucky, is now looking into BlockFi’s interest accounts product on allegations the product may be an unregistered security. Kentucky joins Alabama, New Jersey, Texas and Vermont.
- (Wall Street Journal) Inca Digital, a data firm sometimes contracted by the Commodity Futures Trading Commission, found that 372 crypto derivatives traders it found on Twitter (out of roughly 2,000 total) are based in the U.S., and likely using virtual private networks (VPNs) to trade products barred from the American market through exchanges like Binance, FTX and Huobi, among others, according to the Wall Street Journal’s Alexander Osipovich.
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See ya’ll next week!
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