Some people saw positive effects from the week’s legislative face-off. However, “crypto” and “blockchain technology are still at an important moment.”
It was a week of topsy-turvy — or “staggering”, as a crypto veteran described it. It was a week that Senator Ted Cruz of the United States and Senator Ron Wyden of Canada collaborated on behalf cryptocurrency and blockchain industry. However, it was a loss. Although it may not appear so now, these events could pave the way to future regulatory success.
Recall: While the $1.2 trillion infrastructure bill by the Biden Administration was meant to be about roads and bridges, as the Senate vote neared, it became more about cryptocurrency taxation. A last-minute amendment to the bill that crypto advocates warned could have serious consequences could result in BTC miners being forced out of the U.S. and hinder future blockchain development.
“It will be a stunning loss for America and our ability to remain the innovation epicenter of the world,” warned venture capital firm Andreessen Horowitz.
A last-gasp compromise was reached, with senators representing both parties. This briefly raised hopes. However, any changes to the bill that were made after the deadline required unanimous consent from the Senate floor. Richard Shelby of Alabama canceled the effort, apparently because it did not include his amendment for $50 Billion in military spending. This is completely unrelated to crypto taxation.
The Senate passed Tuesday’s infrastructure bill. It included a proposal to generate $28 million in tax revenue from crypto transactions. Additionally, it retained a broad definition of “brokers” that is subject to reporting regulations. This could potentially include software developers, crypto miners, node validators, and even those who create non-fungible tokens or NFTs.
It’s not all lost
The sky might not be falling, if you think about it. Now, the legislation will be moved to the U.S. House of Representatives. This House will have its priorities and modifications. The timeline for implementation is still two-and-a half years away so anything could happen. The tumultuous week could even bring long-term benefits to the crypto sector.
Peter Hans, managing director of digital asset management company Arca, said that “the developments over the last week were massively favorable.” He added: “This is now firmly under the radar of Congress which means they’re starting to learn beyond the tired narratives about energy efficiency and ransomware payment.”
Cointelegraph’s Matt Hougan, chief investor officer at Bitwise, said that the bill’s language is “broad enough” to cause significant damage to the industry. He said that even though it does not guarantee a dire outcome, it is still a good idea to be cautious.
“Parts are unclear and the worst consequences are unlikely to be held up in court. However, if it is interpreted correctly, it can have serious consequences and stifle innovation, as well as limit the growth of the U.S. industry.
Cointelegraph was told by Rocco Marchiori (a certified public accountant who is also vice president of risk management at Blockware Mining), that “a lot is at stake.” Everyone working in this space needs clarity,” particularly “a clear definition” of a broker, as brokers will be subject to reporting requirements beyond those required for traditional brokers. Marchiori said that Coinbases around the world will file 1099 tax forms if required. However, developers and transaction validators are not allowed to do so.
Hans stated that the bill had passed the Senate with its initial, vague language. It is now on its way to the House. However, Hans explained that the House would make adjustments and then reconcile with the Senate.
“[Senator Robert] Portman was very clear about the intent of the language, [U.S.] Treasury [Department] was also clear. Therefore, the implementation of end language is almost certain to not be the draconian descriptions you are seeing in media.”
Zachary Kelman (managing partner at Kelman PLLC) and general counsel at Cointelegraph, stated that “nothing will be implemented before the end of 2023.” He is also skeptical that the problematic language and flawed definitions will get it there.
The Grassroots effort “took everybody by surprise”
The Senate floor defeat may have not been a setback for the crypto industry. “It wasn’t a completely wasted effort,” Winston Ma, adjunct professor of New York University School of Law, said to Cointelegraph. He is the author of The Digital War: How China’s Tech Power Shapes Future of AI, Blockchain, and Cyberspace. The IRS could be influenced by the arguments of the crypto industry, as they are reflected in the legislative records.
There were also some oddities during the week, such as the sight of U.S. senators collaborating across party lines to reach a compromise on the bill’s cryptocurrency tax provisions. This is a rare sight these day. “Ultimately, U.S. regulators desire sensible protections that foster innovation. Hans stated that in order to encourage institutional investment, there must be regulatory clarity. This is the first step.
“The fact that a crypto debate stalled a $1 trillion bipartisan Infrastructure bill is proof that there is growing recognition of the value of this industry for America’s future,” Hougan said. He continued: “The fact the crypto industry was capable of rallying so quickly and massively in order to influence the political agenda speaks great things about our future.”
This week, it was demonstrated that “this group is global, and we cooperate quick and effectively,” stated Marchiori. Hans said that the mobilization and lobbying thrust for the crypto sector “was grassroots” and that everyone was taken by surprise.
Hans said that there was some hyperbole as is the case in politics and lobbying. However, this can be a catalyst for DC’s lobbying efforts. It was also a catalyst for politicians to realize that there are constituents who care deeply and it is completely non-partisan. “I honestly don’t see any real negatives.”
Kelman commented that “The crypto community has come into its own” as an important political factor. It was also apparent to many U.S. senators that they may now attract considerable social media attention if they make a statement or comment on crypto and blockchain developments. Kelman said that Ted Cruz was a Twitter Crypto hero and “when’s the last time a Republican received positive attention on Twitter.”