The U.S. House of Representatives is finally taking up the Senate’s bipartisan infrastructure bill. If the bill passes, it seems increasingly likely that the original crypto tax provision will pass with it.
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How’d we get here?
The House takes up the bipartisan infrastructure bill this week. Industry advocates are pessimistic about their chances of inserting an amendment to modify the crypto tax provision, which they’ve suggested might outright kill the U.S. crypto industry or drive it out of the country. But there’s still a lot we don’t know, including whether the bill will be passed or how the Treasury Department will interpret the law.
Why it matters
In last week’s newsletter, I wrote about how non-crypto issues might hold up any crypto-related amendments. It’s looking increasingly likely that this will happen. The outcome of this crypto provision will likely be decided by issues that have zilch to do with crypto.
Breaking it down
The House of Representatives is taking up the bipartisan infrastructure bill this week, having cut its summer recess short.
I wrote last week that non-crypto issues would determine the fate of the crypto provision. As of 5 p.m. Eastern yesterday, that seems to still be true.
Lawmakers are, as of Monday night, still grappling with political issues like whether a massive $3.5 trillion reconciliation bill will be sent to the House before they take up the bipartisan bill, and so crypto issues are far from front and center. We’ll keep an eye on things throughout the week to see if that changes, but for the moment, I wanted to write about how we got here.
First: My understanding as of Monday, based on multiple conversations with insiders who asked not to be named in order to speak candidly, is that the U.S. Treasury Department is looking to clarify its authority to impose tax-reporting requirements on crypto exchanges and certain decentralized exchanges.
Specifically, Treasury appears to want to capture DEXs that have intermediaries as part of their platforms, rather than true peer-to-peer projects.
The crypto tax provision rose out of this perceived need.
The Joint Committee on Taxation (JCT), which projected that the provision would raise $28 billion over 10 years, still hasn’t explained how exactly that figure came about.
Stronger information reporting rules would boost compliance, meaning JCT’s projected figure is based on an assumption that just by encoding the crypto tax provision, more exchanges or other trading platforms will provide the reporting information that some exchanges already provide. That, in turn, is expected to bring the total amount of tax revenue generated through crypto transactions over the 10 years after the bill is enacted up to the $28 billion figure.
Of course, that is all subject to Treasury interpreting the final bill, which cannot happen until the bill itself is passed by the House and signed into law. As of now, House Speaker Nancy Pelosi (D-Calif.) is targeting an Oct. 1 deadline for passing both the bipartisan infrastructure bill and a reconciliation bill driven entirely by the Democratic caucus.
Rob Portman (R-Ohio), the senator who inserted the tax provision, tried to detail what that interpretation may look like.
In an effort to specify which types of entities would be subject to the broker definition under the provision, Portman and Sen. Mark Warner (D-Va.) engaged in a colloquy, a sort of back-and-forth intended to clarify for the Congressional Record what exactly the lawmakers’ intentions are with any given provision.
According to a transcript on Portman’s website:
“The purpose of this provision is not to impose new reporting requirements on people who do not meet the definition of brokers. For example, if you are someone who is solely involved with validating distributed ledger transactions through proof of work – commonly known as miners – if you are solely mining, you will not be considered a broker. The same would be true for proof of stake validation, and other validation methods, now or in the future, associated with other consensus mechanisms that are developed and might come into the market as the technology evolves. If you’re solely staking your digital assets for the purpose of validating distributed ledger transactions, you will not be considered a broker.”
In the absence of any amendments, this colloquy will serve as the intended narrowing factor for the legislation. This is not as forceful as an amendment, but it’s still an important tool for lawmakers to explain what they intended for the bill.
Amendments remain unlikely, my sources tell me, because any amendment runs the risk of sending the overall infrastructure bill back to the Senate for reconciliation, and House leadership is not willing to reopen that can of worms.
Plus, if a crypto amendment is adopted, other lawmakers might push to add their own priorities. Remember, the reason a crypto amendment ultimately died in the Senate is because of an unrelated defense provision that a senator wanted to attach to the bill.
Changing of the guard
Brian Quintenz, a commissioner on the Commodity Futures Trading Commission, announced he will formally depart the agency on Aug. 31 (a week from today). During his time at the CFTC, Quintenz was a vocal advocate for the crypto industry, suggesting that businesses form a self-regulatory organization (SRO) and otherwise arguing for a do-no-harm approach to regulating the industry. After he departs, the CFTC will have just three commissioners: Acting Chairman Rostin Behnam, Dawn Stump and Dan Berkovitz. U.S. President Joe Biden has yet to nominate anyone to fill the seat left open after Heath Tarbert stepped down as chairman.
- Bitcoin Use Will Be ‘Totally Optional’ in El Salvador, Finance Minister Says: El Salvador published some new documentation around its Bitcoin Law, which is set to take effect next month, and Finance Minister Alejandro Zelaya said local entities will not be forced to accept bitcoin as a means of payment. El Salvador President Nayib Bukele echoed these comments on Sunday. However, it doesn’t look like the government will amend the actual law that requires everyone to accept bitcoin.
- TON Legacy: How Telegram’s Crypto Coin Lives On: Telegram shuttered its TON blockchain project last year, but two different groups are trying to keep it alive by forking its open source code.
- CFTC Commissioner Stump Decries ‘Oversimplification’ That Crypto Is Either a Security or Commodity: We’re really going to have to talk about this more in depth at some point, but rhetoric around the SEC’s role in regulating crypto markets vs. the CFTC’s role in regulating crypto markets seems to be heating up.
- (CNBC) Some locals in Afghanistan are turning to cryptocurrency after banks and local currency exchangers shut their doors amid the U.S. withdrawal from the nation. However, cash is still king, according to CNBC’s MacKenzie Sigalos.
- (The Washington Post) U.S. President Joe Biden has yet to nominate or hint that he will nominate a new vice chairman for supervision at the Federal Reserve. Randal Quarles, who currently fills that seat, will finish his term in October. The role is important because of its impact on banking policy. For the crypto crowd, the Fed is looking at crypto banking issues, as well.
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See ya’ll next week!