Crypto is complicated, but that’s no excuse for poor legislation
Since the language first went public, the idea of using crypto as a form of payment in the trillion dollar infrastructure bill has garnered a vigorous response from the crypto industry. . Think tanks, trade associations, and many of the biggest players in the crypto-asset industry have rallied together to try and make changes to the original language.
At the heart of the matter is how the proposed wording defines who is a broker and what the tax reporting obligations of these organizations and individuals are. As of this writing, two competing amendments have been proposed to revise this definition, with supporters of each making their views well known.
Ultimately, however, the true impact of this legislation and wording will not be felt for some time and will be heavily influenced by how the language that is ultimately incorporated into the final bill is interpreted by regulators. . Even after the bill is passed and it comes into force, whatever form it takes, the interpretation of statutory language by regulators will play a big role in how this law guides market actions. In other words, the debate and conversation around the language is absolutely an essential part of the process, but is only part of the process; efforts to educate and inform policy makers on these issues must continue for the foreseeable future.
In addition to all of this, there are also broader perspectives and issues that need to be considered when answering the following questions: Why is it so important that US crypto regulation is done properly? Let’s take a look at some of the reasons why this regulation, along with any future crypto regulation, is so important to the industry.
Create a precedent. The question might be rightly asked as to why this specific regulatory language has received so much attention, since cryptography has already been in the crosshairs. Such an attitude is true, but also misses the next point; Prior to the inclusion of this language in this infrastructure bill, crypto and blockchain more broadly had not been the subject of major legislative action.
Outside of the Internal Revenue Service (IRS) which clamps down on tax evasion, the blockchain and crypto-asset industry has remained – for the most part – on the back burner from a regulatory and political standpoint. With this inclusion, and the debate it sparked, that is certainly no longer the case.
This highlights the need and critical importance of balancing the need for clear and enforceable rules with the need for any crypto legislation or regulation not to stifle innovation or creativity.
Global implications. While it is true that any legislation passed in the United States is for the United States, it would be naive to think that laws implemented in the United States will not influence global decision-making. Blockchain and cryptoassets have long suffered from a disparate and inconsistent legal framework that makes it difficult to conduct business and transactions on a global scale. Transparent and sensible regulation is part of the foundation of any global economic sector; crypto-assets are no exception to this principle.
What could happen, especially if the current wording regarding reporting and compliance obligations remains unchanged or further clarified, is that other jurisdictions would have the opportunity to adopt similar measures around the world. In addition to the tax reporting and payment obligations that already exist in many jurisdictions, the strict degree of compliance that might become necessary would discourage capital and individuals from entering the industry in the first place.
Leading news. A silver lining to this intense debate and decline in the crypto-asset sector has two components. First, the fact that the cryptocurrency and blockchain industry has been able to exert the level of influence it has should be seen as an encouraging sign. Far from being seen as a tool for criminals or ‘fake money’, crypto-assets are a rapidly maturing part of the financial market.
Second, the awareness and education that has taken place over the past few years has clearly borne fruit in this current debate. Admittedly, policymakers have acted quite aggressively in terms of the application of crypto with several public statements to this effect recently made by several regulators, while also working with industry leaders in a consultative manner.
This is good news, as any strong and flexible regulatory framework for such a rapidly evolving field will require coordination and cooperation between the private sector and policy makers.
Blockchain and cryptoassets have existed in a regulatory landscape that could best be described as murky. Although the regulatory language that was included in the infrastructure bill is a mistaken attempt to help increase tax and reporting compliance, and it would be tempting to simply endorse it and apply “fixes” later, it is an incomplete perspective. Regulation regarding crypto-assets and how crypto intersects with the wider financial markets is of crucial importance. What is more important, however, is getting it right in a way that encourages continued investment and innovation.