State of Crypto: What Just Happened in the US Senate?

After all the drama of the past week, the industry is right where it was eight days ago.

CoinDesk Insights
Aug 10, 2021 at 1:30 p.m. UTC
Updated Sep 14, 2021 at 1:37 p.m. UTC

Well, the U.S. Senate’s going to pass its infrastructure bill today. Despite a week of negotiations, the language in the bill will be the broadest version possible. There’s a bit of regulatory whiplash going on.

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Chaos in Congress

The narrative

And after all that, the bill the Senate will pass is the exact same version we saw a week ago.

Okay, if you’re a reader of this newsletter, you’ve probably kept up with what’s going on in D.C. I’ll throw some links below if you need to catch up but, in short, the Senate is going to vote on its $1 trillion infrastructure bill with the original crypto tax reporting provision that was introduced on Aug. 1. Two amendments and a Hail Mary effort were blocked for non-crypto reasons. 

Why it matters 

Congress definitely isn’t ignoring crypto anymore. The jury’s still out on what that means.

Breaking it down

So last week was a trip. At one point, a $1 trillion must-pass infrastructure bill was in limbo, in part due to crypto. And on Sunday night, after all the time and energy invested in changing the crypto reporting provision, we saw the Senate vote to just pass the bill as originally introduced a week prior, for reasons that had nothing to do with the crypto provision.

Less than a day later, we saw a last-minute effort to add a bipartisan compromise fail because a senator wanted to add a military spending amendment. 

I wrote last week that the crypto provision in the infrastructure bill was a sign that Washington lawmakers believe crypto will be a permanent part of the U.S. financial or technological ecosystem. The past week’s worth of lobbying and action has largely just reinforced my observation. 

We saw two different bipartisan groups of senators submit amendments to the original draft to narrow the scope of the term “broker” before these groups came together to offer a compromise that satisfied all involved lawmakers, the U.S. Treasury Department and industry groups. 

A handful of news articles, such as in Politico, The Washington Post, The New York Times and Vox, seemed to underscore this point

Based on my Twitter feed, we’re also likely to see more support for the lobbyists and think tanks, as well as more public outreach from the incredibly online group of crypto users and proponents. 

Now, all eyes turn to the House of Representatives. There’s already bipartisan support for amending the bill, but the question is how. Any changes will need to be reconciled with the Senate version, meaning if there’s a substantial difference in the pay-fors, House lawmakers will have to find a way to fill that hole. 

In the weeks to come I imagine we’ll learn more about what the House may do and what are the non-crypto considerations. But in the meantime, here’s a little refresher on how we got here:

  • July 28: Draft text of the infrastructure bill broadens the definition of a “broker” for crypto tax reporting purposes, explicitly including decentralized exchanges.
  • Aug. 1: The final draft text drops the “decentralized exchanges” portion but otherwise maintains a pretty broad definition of broker.
  • Aug. 3: Sen. Rob Portman (R-Ohio), who inserted the provision, defends it on Twitter.
  • Aug. 4: Sens. Ron Wyden (D-Ore.), Cynthia Lummis (R-Wyo.) and Pat Toomey (R-Pa.) propose an amendment exempting what they see as non-broker entities.
  • Aug. 5: Portman announces support for narrowing the provision before proposing a lesser exemption with Sens. Mark Warner (D-Va.) and Kyrsten Sinema (D-Ariz.) that would only exempt proof-of-work miners.
  • Aug. 6: The Washington Post reports that Treasury Secretary Janet Yellen has been lobbying Wyden to drop his amendment.
  • Aug. 7: The Senate resumes consideration of the bill.
  • Aug. 7: Warner and Sinema update their proposed amendment to also add proof-of-stake node validators to the aforementioned proof-of-work miners.
  • Aug. 8: The Senate voted to advance the bill without considering any amendments. I’m told this is due in part to Sen. Bill Hagerty (R-Tenn.) objecting to an expedited timeline.
  • Aug. 9: Toomey, Portman, Sinema, Warner and Lummis find a compromise between the two competing amendments and seek unanimous consent to add it to the bill. Sen. Richard Shelby (R-Ala.) objects, meaning the amendment isn’t adopted and we’re back to the base text that was introduced eight days ago. 

More to come on this story.

Defining DeFi

A lot happened last week. SEC Chair Gary Gensler gave a speech on DeFi and the regulatory agency then brought two enforcement actions that seem to be the setup for more DeFi work. 

This might actually be a bigger signal than what the Senate’s doing. The infrastructure bill, even if passed into law, won’t take effect for another year. The Securities and Exchange Commission is gearing up now in what sure looks like an effort to stake its claim to DeFi regulation. 

So far, the two actions we’ve seen have been with centralized entities. On Friday, the SEC announced charges against DeFi Money Market, which doesn’t appear to actually be a decentralized anything but was still described as a “decentralized finance lender” in an SEC press release.

The release said the case was the “agency’s first involving securities using DeFi technology.”

Yesterday, the SEC settled with Poloniex, which was briefly a Circle subsidiary. Gabriel Shapiro, general counsel at Delphi Labs, tweeted that it looks as if the SEC may be trying to build a precedent for more decentralized exchanges, as did Collins Belton, managing partner at Brookwood P.C.  

In other words: There will absolutely be more cases, and in time those cases are going to move from centralized trading platforms masquerading as decentralized ones to ones that more closely resemble DEXs.

In a statement published alongside the Circle settlement, SEC Commissioner Hester Peirce also noted that it’s still unclear just which cryptocurrencies on the exchange were securities, a key question for other exchanges operating in the U.S. 

Biden’s rule

Changing of the guard

Key: (nom.) = nominee, (rum.) = rumored, (act.) = acting, (inc.) = incumbent (no replacement anticipated)

The Biden administration is now considering Cornell University law professor Saule Omarova as a potential head for the Office of the Comptroller of the Currency, which is currently headed up by Acting Comptroller Michael Hsu, according to The New York Times. Moreover, Acting FinCEN head Michael Mosier has stepped down, and has been replaced by Himamauli “Him” Das.

Elsewhere: 

Outside CoinDesk:

  • (Intergovernmental Panel on Climate Change) The IPCC, a United Nations group, has published a report finding that global climate change is inevitable over the next three decades. Nations can still take steps to try and mitigate how severe the impact is, but there will be a global 1.5° C rise in the coming decades, with all the side effects that will bring with it.  

If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Twitter @nikhileshde

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See ya’ll next week!

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