US Congress Takes Aggressive Stance Against Crypto
VYSYN Ventures Weekly Insights #61 — A new regulation could stifle the US cryptocurrency industry
The addition of cryptocurrency-focused regulations in the recently agreed US Infrastructure Bill is causing some uproar among those in the industry. The regulation targets enterprises within the cryptocurrency industries, putting a greater degree of oversight on them in an effort to increase tax returns.
This development holds the potential to hugely impact and potentially stifle the US cryptocurrency industry. Since the announcement of an agreement between President Joe Biden and a bipartisan group of lawmakers, there have been several reactions.
In the latest VYSYN Release, we highlight the details of the newly proposed bill and the expectations surrounding its implementation. We also note the reactions of participants in the cryptocurrency industry, noting their concerns and opinions over the proposed bill and what it could mean for both the industry and the regulators.
Taxing crypto to fund infrastructure
The US Infrastructure Bill is a proposal that estimates it will generate a total of $550 billion across several industries. The generated funds will be used to carry out infrastructural projects over 8 years. Road construction, the building of bridges, and the installation of high-speed internet are among the examples of where the funds are expected to be spent.
A recent addition into the proposed bill expects about $28 billion to be generated from the cryptocurrency industry through tax. Brokers, exchanges, and other intermediaries that participate in the cryptocurrency industry are the primary targets of this proposal. According to the bill, any transaction exceeding $10,000 is expected to be reported to the Internal Revenue Service (IRS) for appropriate taxing. This will significantly raise the compliance costs imposed on these businesses.
With this bill, a lot will be expected to change in the cryptocurrency industry, especially regarding service providers. The increased costs to meet compliance requirements will make it infeasible for some to carry out their operations. Moreover, how wallet providers are expected to comply with this regulation is still unknown.
What stakeholders think about the infrastructure bill
Compass Mining, Blockchain Association, Coin Center, and the Association for Digital Asset Markets are among the groups and businesses that have criticized the proposed bill. The possibility of targeting individual crypto users is one of the concerns raised by these groups in their various statements. CEO of ADAM, Michelle Bond, expressed concern about the lack of consultation by the government in developing the proposed bill. She noted that industry participation in the creation of these kinds of bills is critical, especially in the area of providing technical assistance.
IRS Commissioner Charles Rettig supports the bill. In April, Rettig faulted the absence of crypto-transaction reporting requirements in the US financial sector. According to him, it contributed to the upward of $1 trillion every year in unpaid taxes. Back then, he advised lawmakers to take action at fixing the problem. Perhaps, the recent development is part of the response to his recommendation.
The concern about the infrastructure bill is that it aims to regulate the decentralized cryptocurrency ecosystem like the mainstream financial industry. This is where many crypto practitioners are having an issue with the bill. Moreover, it may not be possible for certain segments of the cryptocurrency industry to comply with this system.
China also takes aggressive crypto stance
The US is not the only country that has been taking aggressive regulatory stances against the cryptocurrency industry. In China, many jurisdictions have outright banned cryptocurrency-related activities, making space for the upcoming central bank digital currency (CBDC).
On several occasions over the last couple of years, there have been regulatory clampdowns on cryptocurrency activities in China. The clampdown escalated this year, forcing many in the crypto industry to leave the country. We may see a similar phenomenon occur among service providers in the US if the Infrastructure Bill requirements are imposed.
Coming shake-up in the US crypto industry
The US Infrastructure Bill is all but effective after an overwhelming bipartisan vote to support the bill on Friday, July 30th 2021. Despite this approval by the senate, dissenting voices that disagree with the bill will continue to cry out. Some industry stakeholders are still of the opinion that the bill required more time and attention than it was given before being passed.
The true effect of the bill will be felt upon implementation and enforcement. Not many users expect the Chinese style of enforcement by the US. However, based on the current diversity of opinions about the bill, it will not be out of place to anticipate some chaos when it swings into full implementation.
A lot of adjustments will be expected from cryptocurrency users in the US, especially service providers. They will be forced to meet compliance requirements that are similar to the banking industry. Such requirements will no doubt reverberate across the US cryptocurrency industry and shape the way that the industry is structured. In the following years, if the bill is implemented, we will likely observe the US cryptocurrency industry begin to closely resemble the US banking sector.