On Tuesday the US Senate passed the Biden administration’s $1.2 trillion infrastructure package that, despite now heading for a fight in the House, could change cryptocurrency regulation as we know it.
The mammoth infrastructure bill was passed 69-30 with hopes to be the nation's biggest investment in decades in roads, airports, broadband internet, water pipes, and public works systems.
But in order to find the cash for the investment, the 2,700-page bill also included a new provision extending tax reporting requirements to cryptocurrencies like Bitcoin. Now, anyone defined as a “broker” for cryptocurrencies will have to collect information on users and report transactions over $10,000.
This category would appear to just include companies that sell digital assets, like exchanges. But the wording of the bill is vague, and a whole host of others involved in the cryptocurrency industry world could also be roped into filing taxes, despite them not necessarily knowing who their users even are—including crypto miners, hardware manufacturers and even wallet developers.
Crypto advocates last week pushed against the wording of the bill, which hopes to squeeze $28 billion in taxes out of the crypto industry. Some observers even warned that node operators could end up leaving the US altogether, unless the wording was changed. In response, three senators—Ron Wyden (D., Ore.), Pat Toomey (R., Pa.), and Cynthia Lummis (R., Wyo.)—put forward an amendment to define crypto brokers as custodial entities, like exchanges.
Another amendment was then put forward to widen the definition, gaining the support of the White House but having the effect of too narrowly defining exemptions. In the end, though, the very vague wording was kept and the bill was passed. Now, the crypto community is up in arms even as the bill heads to the House where more debate is likely.
Matt Aaron, the co-founder of UniWhales, an analytics platform that provides data to those in the decentralized finance space, told Motherboard that “the news alone may increase the exodus of crypto companies moving away from the US to innovate elsewhere.”
The Electronic Frontier Foundation even raised privacy concerns with the provision in the bill as it’s currently written. “The existing language is so vague and broad that it could be interpreted to sweep in a whole range of folks who are not brokers at all, including software developers who are just writing and publishing open source code as part of a cryptocurrency project,” the digital rights advocacy group told Motherboard.
But what comes next? The bill is yet to be passed by the House of Representatives, where it’s due to be reviewed in September. Alex Kruger, an ex-banker and cryptocurrency analyst, added that an US exodus of crypto companies “can definitively happen” but that a lot can change.
“Many things can change along the way,” he said. “The crypto lobby has shown its strength at the highest levels for the first time, and heavy weight politicians sided with crypto. Odds are things will change along the way.” He added: “There is plenty of time to turn things around.”
Kruger was referring to politicians like Ted Cruz, who criticized the vague ruling. The Republican senator was backed by tech billionaires and Bitcoiners like Elon Musk and Jack Dorsey, who all agreed that the wording needed to be changed. “The infrastructure deal contains dangerous provisions that would devastate crypto and blockchain innovation," Sen. Cruz said over the weekend via Twitter.
And he wasn’t the only one. Tom Emmer (R-MN) who is also co-chair of the Blockchain Caucus, urged the House in a letter to change the wording to “keep blockchain software development, cryptocurrency mining, and more in the United States."
Brady Swenson, Head of Education at Swan Bitcoin, an app that automates Bitcoin purchases, and the host of podcasts Swan Signal Live and Citizen Bitcoin, added that there was plenty of time, too. “The bill still has to go through the House where amendments could be made,” he said. “Even if the bill becomes law as is, it won’t go into effect until 2023 leaving time to educate lawmakers. It’s also important to note that agencies will be responsible for interpreting and applying the law. The language is vague and broad, leaving a lot of room for interpretation.”
Neeraj Agrawal, Communications Director for cryptocurrency advocacy organization Coin Center, also told Motherboard that it was too early to predict an exodus yet and there are several opportunities yet to change the provision’s wording.
“There's plenty of steps left before anything so dramatic as an exodus might happen,” he said. “For one thing, there's the House, which might still take up the compromise amendment. It's a sensible fix to overbroad law that has been blessed by the Treasury. Then, should we fail again, there's reconciliation in the Senate.”
“Then, if we fail there, there's an opportunity to work with the Treasury on their interpretation. From there, we will have to keep vigilant and ensure Treasury does not try to abuse their new blanket authority,” he added.