It’s Not About Taxes, Congress is Coming After the Entire US Crypto Industry
The unreleased infrastructure bill is the talk of the crypto town, and for a good reason, as it aims to generate $28 billion in tax revenue from the current $1.67 trillion cryptocurrency industry to help fund the nearly $1 trillion bill.
The bipartisan Senate proposal aims to amp up IRS surveillance over cryptocurrency transactions. The bill broadens the Tax Code's definition of “broker” to cover nearly everyone in crypto, including non-custodial actors like miners, forcing them all to KYC users, explained Jake Chervinksy, General Counsel at Compound Finance. Adam Cochran of Cinneamhain Ventures commented,
“Politicians need to stop taking the paternalistic approach of trying to ban all risks and invest in the underlying problems that make people disproportionately abuse those risks.”
Q: Could the infra bill apply to NFTs?
The bill defines "digital asset" broadly, as "any digital representation of value…recorded on a cryptographically secured distributed ledger[.]"
If Treasury says this includes NFTs, then NFT issuers, merchants, etc. are brokers.
— Jake Chervinsky (@jchervinsky) July 31, 2021
The definition of a “broker” is expanded in the bill to include “any person who (for consideration) is responsible for and regularly provides any service effectuating transfers of digital assets.”
Earlier drafts even covered non-custodians, including PoW miners & PoS validators. They explicitly included DEX & P2P markets covering DEX LPs, liquidators, protocol governors, and maybe even node operators or wallet developers.
Crypto regulation is not consumer protection. It is bank protection, it is incumbent protection.
— Balaji Srinivasan (@balajis) July 30, 2021
The tax code requires brokers to comply with IRS reporting requirements, as per which they have to give Form 1099s to their customers & file them with the agency. To fill the form, brokers have to collect customer data, including name, address, phone number, and other information.
“As those who understand crypto already know, users are pseudonymous & access is permissionless,” said Chervinksy.
Non-custodial actors like miners have no way to get the information they need to fill the form, which in practice “could mean a de facto ban on mining in the USA,” he added.
“This sounds insane, but it really might happen. Most crypto legislation goes nowhere, so it's easy to ignore. Not this time. This provision is part of the bipartisan & otherwise popular infrastructure bill, which is moving quickly through Congress & is highly likely to pass,” Chervinksy wrote.
The US Senate is about to vote on an “infrastructure” bill that could make sweeping changes to crypto industry. They claim it will generate $30b a year in taxes.. more than annual revenue of ALL bitcoin miners. Two days notice. Zero debate.
Demand removal! @CynthiaMLummis
— David Bailey🌋 #FreeRoss (@DavidFBailey) July 29, 2021
He further explains that the bill can raise revenue by adding new taxes or making people pay taxes they owe, and Congress thinks crypto is all tax evaders.
“This is no way to handle major new regulations,” said Chervinsky, noting that it would either kill the crypto industry, and the policy may end up a substantial foreign policy failure as China did by cracking down on crypto mining and ended up forcing the miners out of the country.
“The crypto provisions in the new US infrastructure bill are a disaster,” said Avichal Garg of Electric Capital. According to him, this bill would result in the departure of crypto companies from the US en masse. Garg added,
“You can't KYC autonomous code that lives in the cloud that happens to custody crypto. The right strategy is to KYC at the fiat off ramps.”
So, what could a crypto user do here? With the provision not final yet, US citizens can reach out to their Members of Congress.
ppl are framing the infra bill issue as “oh crypto people are just mad about taxes.”
that’s not the issue at all.
it expands the definition of a “broker” to all sorts of individuals who would never be considered one in any other context and in most cases *can’t* even comply.
— Neeraj K. Agrawal (@NeerajKA) July 30, 2021
Crypto supporter Representative Warren Davidson (R-OH) also came against this bill, saying it is a departure from America’s role as someone that spearheads innovation.
“America led in the Industrial Revolution, the advent of the automobile, and the development of the internet,” Davidson said in an interview, “and now America is about to forfeit that leadership with this new technology.”
A petition to “Stop the Senate from sneaking through total surveillance of the crypto-economy” has already been started. Chervinksy said,
“Things are moving fast, which can feel scary. But as it was with FinCEN's proposed rule, it's been amazing to see the entire industry come together this week to fight against this. We really do have some of the best & brightest on our side.”