Lawmakers fought over the infrastructure bill. Here is the continuation

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Senators Cynthia Lummis, R-Wyo., And Pat Toomey, R-Pa., Hold a press conference on a bipartisan agreement to set digital asset reporting requirements in the infrastructure bill, at the Capitol des United States on Monday August 9, 2021.

Tom Williams | CQ-Roll Call, Inc. | Getty Images

This week, the Senate passed the $ 1.2 trillion infrastructure bill without any of the proposed crypto tax return amendments that had held it back for about a week.

The cryptocurrency community is a bit bruised right now, but the events in Washington were not a total loss, experts say. These developments fit into a theme common to the young crypto industry: it has suffered a short-term blow that is likely a victory for those who gamble along the game.

Although the controversial language is “impractical and expensive,” Cowen’s Jaret Seiberg said in a note Tuesday, “the tax reporting language is one of the clearest indications that Washington is ready to accept crypto as a permanent part of it. the financial ecosystem. [It] now sees crypto as a real commodity that deserves government attention, [which] tells us Washington is done looking for ways to end crypto. “

Here’s what last week’s political drama means for crypto and where the industry is going from here.

What just happened?

Crypto was trapped in political theater this week after it was quietly slipped into the 2,700-page bill as a paid provision. While ultimately unable to stop lawmakers, the digital asset community has come together to protect its members. Industry lobbyists and pro-crypto senators kept them informed on social media and urged them to make their voices heard.

The problem at the heart of it all had to do with the definition of a crypto “broker”, which was written in such broad and unspecified language that it could be interpreted to include anyone involved in any type of crypto transaction. . A group of pro-crypto lawmakers, including Sens. Pat Toomey, R-Pa., And Cynthia Lummis, R-Wyo. proposed a modification deemed appropriate by the industry.

This was quickly countered by another proposal that didn’t quite get the job done but won support from the White House and the Treasury Department. Throughout the past week, the vote on the bill has been delayed so that lawmakers can focus on a new and very complex subject.

On Monday, a compromise amendment was presented by the senators behind the two previous amendment proposals. On Tuesday it was moved to the Senate for unanimous consent and rejected by Senator Richard Shelby, R-Ala. The reason, he said, is that his independent $ 50 billion defense amendment has been blocked. Thus, the Infrastructure Bill was passed in the original language and the industry is now back to square one.

“[Shelby] could have just objected to the fix, ”Seiberg said. “Instead of looking more for defense, he used the amendment to give the GOP a way to attack Democrats for not supporting the troops. That’s why we see this more as a political spectacle than a direct attack on crypto. “

Amidst all of this, Senator Ted Cruz, R-Texas, said he had tabled a separate amendment to remove crypto language in case a bipartisan deal could not be reached.

How bad is it for crypto?

Signage outside the Internal Revenue Service (IRS) headquarters in Washington, DC

Bloomberg | Bloomberg | Getty Images

The controversial language of the infrastructure bill requires crypto “brokers” to report customer information, including transactions, to the Internal Revenue Service. There is great concern about the ability of some crypto operators (such as miners, staking workers, and software developers who simply don’t have clients) to comply with this rule.

But it’s not a fatal blow, said Stephen Palley, partner at law firm Anderson Killand, co-chair of his blockchain and virtual currency group.

“Even assuming all of this goes through the House, which is a guess, the language is ambiguous and there is testimony that says the intention is not to impose reporting requirements on infrastructure providers. “he told CNBC. “Who knows what the implementing regulations would look like, and if they are bad they seem likely to be challenged in the courts.”

The language is so broad that it could arguably apply to internet or telecom service providers, Palley added, and would surely be challenged if applied to groups that do not actually do digital asset brokerage. .

“There is no way the language could be interpreted enough to mean this,” he said.

Brokers, prime brokers, asset managers and exchanges are already doing KYC compliance and tax reporting, so the arrangements allow them to continue in business as usual, Jesse said. Proudman, CEO and co-founder of crypto roboadvisor Makara. He also noted that support in the market remained strong on Tuesday when the bill was passed. Bitcoin hovered around $ 45,000 on Tuesday and came back above $ 46,000 on Wednesday morning, according to Coin Metrics.

“Crypto is a creative and entrepreneurial industry, and it will adapt and survive like other industries, regardless of the level of regulation,” he said.

And now?

The House is unlikely to risk the infrastructure package by fixing the crypto language, Seiberg said, but Congress will have the option to do so under other legislation, with the next most likely window being adoption. of the Defense Bill. in autumn.

However, the crypto industry is still set to fight. Representatives Tom Emmer, R-Minn., Darren Soto, D-Fla., David Schweikert, R-Arizona, and Bill Foster, D-Ill. The Blockchain Caucus co-chairs sent a letter to every member of the House on Monday urging them to “fix the crypto payment.”

“Cryptocurrency tax reporting is important, but it must be done correctly,” they said in the letter. “When the Infrastructure Investment and Jobs Act goes to the House, we must prioritize changing this wording to clearly exempt non-custodial blockchain intermediaries and ensure that freedoms are protected. civilians. “

Either way, the new laws aren’t expected to come into effect until 2023 at the earliest, and a lot can happen during that time, said Leah Wald, CEO of digital asset manager Valkyrie Investments.

“The crypto-specific provisions of the infrastructure bill are of long-term concern, but they are unlikely to have any real effect in the short term,” she said. “Since a month in crypto is like a year normally, two years is an eternity. And I’m willing to bet it works a lot better than most people think.”

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