All the talk today is on dueling amendments to a crypto tax reporting requirement in the bipartisan infrastructure bill making its way through Congress.
Industry advocates say one amendment—backed by the White House—could strike doom for decentralized finance (DeFi) protocols and proof-of-stake networks such as Solana and Cardano. And if neither amendment passes, which is unlikely, Bitcoin could also be in trouble.
Yet crypto markets don’t seem to be paying attention.
Bitcoin’s price has risen nearly 4% in the last day, as is Ethereum—the exchange currency of choice for DeFi protocols that enable loans, options trading, and swaps without financial intermediaries.
They’re not alone. The cryptocurrency market cap as a whole has inched up 4%, past the $1.8 trillion mark. Only one asset in the top 25, Terra, is in the red thus far today, according to data from CoinGecko, and it can be forgiven for falling two-tenths of a percent after its 32% climb this week.
If markets seem screwy, it’s because they’re reacting to mixed signals (not to mention dozens of other less-visible variables).
On the one hand, there’s the $1 trillion infrastructure bill being debated in the Senate. To pay for an estimated $28 billion in proposals, the bill’s authors included a provision that would modify tax reporting requirements for those handling digital assets. Industry lawyers suggested that the bill’s language was broad enough that it could require Bitcoin miners as well as those who work to validate transactions on other blockchain networks to file 1099 forms to the IRS on behalf of the users whose transactions they are validating (who would themselves be required to file such forms to the IRS). DeFi protocol developers, Bitcoin Lightning Network operators, and wallet providers could also be implicated.
There’s a reason England doesn’t have any social media companies
There’s a reason France doesn’t have much of a financial services industry
If the White House gets its way, there will be a reason that America doesn’t have a crypto industry
— Preston Byrne (@prestonjbyrne) August 6, 2021
While the ostensible purpose of the bill was to ensure actors in the blockchain ecosystem were paying their fair share of taxes, some argue that this level of Know-Your-Customer requirements is almost impossible to comply with and therefore constitutes a de facto ban on certain crypto activities.
An amendment filed Wednesday by Senators Wyden, Lummis, and Toomey provided relief to the provision’s critics, by making it clear that non-custodial actors such as miners, validators, developers, and wallet providers would be exempt. However, that relief was short-lived as a rival amendment filed Thursday by Senators Portman and Warner—and endorsed by the White House—explicitly exempts only proof-of-work miners and wallet developers.
Both are due for a vote tomorrow as the industry holds its collective breath.
Balanced against that is a more bullish event for Ethereum and the applications that run on it. The London Hard Fork, a network upgrade that went live yesterday, included a code change that reduces the growth of ETH supply by charging fees for each transaction and then subsequently removing them from circulation.
Through the code change, known as EIP-1559, nearly 6,000 ETH (over $17 million) has already been burned. The squeeze on supply has helped edge demand up. The price of ETH is now hovering above $2,900 and is threatening to break above $3,000 for the first time since May.
Some say cryptocurrency is like riding a rollercoaster. Where else can you manage to be up and down at the same time?
