The cryptocurrency industry is pushing this week against the wording of the proposed bipartisan Senate infrastructure bill that could stifle much of the crypto ecosystem.
The wording of the bill would require crypto brokers to report customer information to the Internal Revenue Service. More importantly, over the weekend, he broadened the definition of what is considered a “broker” to any person “responsible for regularly providing any service performing digital asset transfers on behalf of another. person “, which does not exclude miners, software developers, stakers and others in the crypto economy who do not have customers.
“Language gives a lot of power to define what should be included in the reporting requirement,” Oppenheimer analyst Owen Lau. “That says anyone who is responsible for regularly providing any service that performs digital asset transfers on behalf of another person – which can mean anything. If I am transferring bitcoin for you, it can mean I am transferring bitcoin for you. become a broker. “
Senate Majority Leader Chuck Schumer (D-NY) speaks to reporters about the bipartisan infrastructure bill at the U.S. Capitol in Washington, July 28, 2021.
Élisabeth Frantz | Reuters
On Monday, the language was not finalized, and there is still time to correct it before it is, or even through a subsequent bill, according to Kristin Smith, executive director of the Blockchain Association. , a crypto trade association that works to change public policy at the federal level.
Bitcoin fell more than 5% on Monday and Ether fell 1.8%, according to Coin Metrics, with some of the uncertainty surrounding the bill weighing on sentiment.
The biggest concern is that the language “would deter people from wanting to invest or participate in crypto networks in the United States,” Smith told CNBC.
Jake Chervinsky, an attorney with experience in crypto-related securities litigation and government enforcement defense issues who is now general counsel for the decentralized finance company (DeFi) Compound Labs, said it would also be detrimental to existing businesses that would not be able to comply.
“In practice, your only options would be to close or move offshore,” Chervinsky said. “This is what this bill threatens to do to US crypto companies by forcing them to report to the IRS information they do not have and cannot obtain.”
What Does Crypto Have To Do With Infrastructure?
Because the infrastructure bill is so expensive, it must include a lot of “pay-fors” – or provisions in one bill that generate revenue for the government to offset new spending in others. parts of the bill – to keep it revenue neutral and ultimately gain the support of Republicans in the Senate, Chervinsky said.
“Crypto is less of a target of the bill and more of an innocent bystander caught in the crossfire of the broader politics that surround it,” he said.
Lau said Congress was “very smart” about it.
“If they want more money, they just opened up the network to include more businesses so their tax revenues can exceed the $ 28 billion they’re looking for,” he said.
The language would not affect centralized Coinbase exchanges, or other public companies where consumers can buy cryptocurrencies like Robinhood, Square, and PayPal. As public companies, they have clearly identified their clients and are working with them on the reporting requirements due to the IRS.
Still, “they are strongly opposed to the crypto payment provision because they know it could wreak havoc on the broader crypto markets, which would also hurt their business,” Chervinsky said.
Coinbase, for example, spent $ 80 million earlier this year to acquire Bison Trails to power its staking service. Much of the company’s revenue is based on trading fees, but CEO Brian Armstrong said he plans to diversify those revenue streams, which includes strengthening its staking offerings.
Smith said the goal of having reports for centralized exchanges is laudable which the Blockchain Association supports as long as it is limited to the appropriate companies.
Bitcoin miners, who also don’t have clients whose information they can report, could also be hurt if the bill is adopted with existing language that sees them as brokers. It would be a blow to the industry, which has been keen to gain more market share after the Chinese crackdown on mining that has moved more than half of Bitcoin’s mining operations out of China, largely to the United States. United.
“We haven’t given up hope that this can still be sorted out,” Smith said Monday afternoon. “There is certainly a fairly intense advocacy effort underway to change this.”