Crypto Legislation: Everything You Need to Know (for Now)
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Don’t feel bad if you’re having a hard time keeping track of the crypto legislation winding its way through D.C. right now — I spent my whole weekend keeping track of it and barely kept my head around it myself. Here’s everything you need to know:
The Infrastructure Bill
Crypto stakeholders and crypto doubters alike have long asked for clarity around tax reporting standards for cryptocurrencies and associated businesses. As part of the $1 trillion bipartisan infrastructure bill, lawmakers wrote in text placing stricter requirements on “digital assets” and the tax implications around them. It requires “brokers” to report 1099 gains as well as transactions of over $10,000.
The issue is the lack of clarity around the word “broker.” The definition is not clear in the existing amendment and could lead to confusion and potentially require DeFi applications, node validators, and even crypto miners to report transactions. Two camps emerged to clarify the amendment”
The Crypto Allies (Wyden-Lummis-Toomey)
Leading the charge for the crypto industry is senator Ron Wyden, a long-serving (elected in 1996) Democrat from Oregon. Senators Cynthia Lummis and Senator Pat Toomey (both Republicans) also take part.
This amendment makes it clear that these ‘broker’ reporting standards do not apply to miners, wallets, or individuals developing blockchain tech. It’s seen as a tech- and innovation-centric approach. It also provides clarity for brokers, raising tax revenues. Most cryptocurrency exchanges are in support of this approach.
The Crypto Opposition (Portman-Warner-Sinema)
On the other side, the proposed Portman-Warner-Sinema amendment does not clarify the definition, meaning that any entity (potentially including miners, hardware, and software developers) may have to track and report transactions of individuals that aren’t direct customers.
Crypto advocates say this will push innovation offshore and create unnecessary, inefficient, and unfair burdens on crypto stakeholders that may have to report.
Wait, Why is Janet Yellen Here?
Former fed chair and current treasury secretary, representing Joe Biden and the White House, signaled her support for the Portman-Warner-Sinema amendment.
How Might This Affect Me?
Crypto markets have appeared relatively impervious to all of this political movement, up nearly 10 percent on the week, although most top cryptos dived over 5% on Sunday night.
This probably means one of three things:
- Crypto investors continue to believe that no one country can affect the future of crypto enough to stifle long-term innovation
- Crypto investors think a reasonable compromise will be reached
- Crypto investors simply don’t care about the legislation and the market is behaving irrationally
If you could potentially be directly affected by this legislation from a business or tax perspective, you’re probably following along pretty closely, but let’s take a look at who this might affect:
Who This May Directly Affect:
- Crypto exchanges
- Crypto hardware and software developers
- Crypto miners and staking node operators
Who This Probably Will Not Directly Affect:
- Cryptocurrency investors who hold crypto on an exchange like Coinbase, Binance, Robinhood, eToro
- Cryptocurrency investors who hold crypto in hardware or software wallets
- Noncustodial wallets
- Cryptocurrency investors who stake their crypto
- People or companies that work on blockchain validation
- Other areas of DeFi
Got a friend with all of their net worth in crypto that doesn’t read the news?
Where Are We Now:
Things are hard to keep track of in part because the infrastructure bill falls along party lines in some ways, but in other ways causes bipartisan rifts and activity. Crypto is unique in that sense.
Discussion on the crypto amendments has largely ceased because of partisan disagreement on whether the entire infrastructure bill should be passed along ASAP as it is, or if discussion on amendments will continue. The existing bill probably includes miners and devs as ‘brokers,’ so it’s important that some type of amendment is passed
The Compromise Bill
Just about an hour ago, a new bill (being referred to as the Toomey-Lummis-Warner Compromise Crypto Amendment) was introduced that somewhat clarifies the definition of broker and makes exceptions for both validators and crypto wallet makers.
This helps with the direst of possibilities and also punts future interpretations and regulations down the road and to the Treasury (they’ll have to issue a lot of clarifications on how these rules will go into effect). It’s probably a compromise that most of the crypto world and most senators will be happy with, and it clears the way to the passage of the infrastructure bill. Senator Wyden’s name is notably absent from the amendment.
What to Watch Out For
Keep in mind that this is merely an update: no consensus has been reached and many things could change in the coming hours or days that may represent a tremendous win or a history-altering loss for crypto.
One thing is clear: cryptocurrency is here to stay, although America’s role as the epicenter of development may be at stake.
If you’d like to affect the outcome, this Twitter thread is a great place to start and represents actionable steps that are will continue to be relevant in the coming day, weeks, and even months.
Founder, Crypto Pragmatist
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