Skip to main content

Around the Hill

Congress always has a lot on its plate--particularly before it heads into its annual August recess. And this year is no exception. There were the heartbreaking hearings about the events that unfolded on January 6. There was also a lot of scrambling to figure out a short-term solution to the expiration of the eviction moratorium. There was the Senate resolution establishing Hip Hop Celebration Day (August 11) and Hip Hop History Month (November 2021) (I love hip hop but who asked for these things...?). 

And then there was the unveiling of the Senate's massive $1.2T infrastructure bill. The bill has a lot in it. The proposed legislation has some things that one would expect to see in an infrastructure bill, such as improvement projects for roads, rails, pipes, broadband, etc. There are some other more surprising or interesting initiatives, such as the pilot program testing out national motor vehicle per-mile user fees. And then there's what some are calling the "cryptocurrency surveillance" provision. *record scratch*

Infrastructure Bill: Where the Rubber Meets the Crypto Road 

In a provision titled "Enhancement of Information Reporting for Brokers and Digital Assets," the original version of the bill seeks to expand the definition of "broker" in the Internal Revenue Code. The new definition would include anyone who is “responsible for and regularly providing any service effectuating transfers of digital assets” on behalf of someone else. Anyone that falls under this umbrella would need to collect user data, including names, social security numbers, and addresses, because she would be subject to the IRS reporting requirements for brokers.

One issue with this proposed all-inclusive definition is that it could (inadvertently?) sweep in network participants that do not/should not have access to sensitive customer information, such as miners, nodes, and developers. Second, if adopted into law, the provision could place an unnecessary regulatory burden on companies that do not play any custodial role when it comes to users and their digital assets.

The proposed provision received swift backlash from the crypto community because it is overly broad and likely would discourage continued innovation in the space. Furthermore, many in the crypto community highlighted privacy concerns over non-custodial participants collecting sensitive data and transaction information on users.

In response to this backlash, a handful of senators proposed an amendment to the provision that would carve out explicit exclusions for non-financial mediators, such as validators, hardware and software makers, and protocol developers. At the time of writing this blog, a compromise on the original language has not yet been agreed to. And, if I'm not mistaken, another amendment from one of my senators has been put forth.

One might wonder how this type of provision relates to infrastructure. The short answer is that it really doesn't. However, Congress sees an opportunity to increase government revenue (to pay for the infrastructure bill) by decreasing suspected widespread crypto tax evasion. Only time will tell whether these suspicions are confirmed but the more you know...

The Digital Asset Market Structure and Investor Protection Act

While we're on the topic of Congress, my Congressman recently introduced a bill in the House that aims to incorporate digital assets into the existing financial regulatory frameworks. Regulatory uncertainty and ambiguity are ongoing concerns for crypto innovators and investors. The Digital Asset Market Structure and Investor Protection Act seeks to resolve some of that uncertainty by:

  • Creating statutory definitions for digital assets and digital asset securities and providing the Securities and Exchange Commission (SEC) with authority over digital asset securities and the Commodity Futures Trading Commission (CFTC) with authority over digital assets.
  • Providing legal certainty as to the regulatory status for the top 90% of the digital asset market (by market capitalization and trading volume) through a joint SEC/CFTC rulemaking.
  • Requiring digital asset transactions that are not recorded on the publicly distributed ledger to be reported to a registered Digital Asset Trade Repository within 24 hours to minimize the potential for fraud and promote transparency.
  • Explicitly adding digital assets and digital asset securities to the statutory definition of “monetary instruments” under the Bank Secrecy Act and formalizing the regulatory requirements for digital assets and digital asset securities to comply with anti-money laundering, recordkeeping, and reporting requirements.
  • Providing the Federal Reserve with explicit authority to issue a digital version of the U.S. Dollar, clarifying that digital assets, digital asset securities and fiat based stablecoins are not U.S. legal tender, and providing the U.S. Treasury Secretary with authority to permit or prohibit US Dollar and other fiat-based stablecoins.
  • Directing the Federal Deposit Insurance Corporation, National Credit Union Administration, and Securities Investor Protection Corporation to issue consumer advisories on “non coverage” of digital assets or digital asset securities to ensure that consumers are aware that they are not insured or protected in the same way as bank deposits or securities.
  • Requiring legislative recommendations from FinCEN, SEC and CFTC to provide clarity on dividing lines between who must register as a money services business versus who must register as a securities or commodities exchange.
I don't know that anything as comprehensive as this bill has been proposed in either house before and I typically don't think of Rep. Beyer as a crypto champion. But if regulatory certainty is what we want, this bill offers quite a bit of that. It will be interesting to see what parts of this bill the industry supports and whether this bill is able to gain any traction on the Hill. Stay tuned!

Comments

Popular posts from this blog

The Rundown on CBDCs

Everyday there is a news report about a country that is "exploring" or "studying" the possibility of developing a central bank digital currency (CBDC). In the past few days, I've read articles about Rwanda, Israel and France looking to pilot programs with CBDCs. And yesterday, the Bank of International Settlements announced its backing of the development of CBDCs. With approximately 80% of central banks around the world taking a closer look at CBDCs, now is as good a time as any to learn more about them. What Are They? A central bank digital currency is exactly what it sounds like--a digital currency issued by a central bank. In the same way our central bank, the Federal Reserve, issues the U.S. dollar, it would similarly issue some official U.S. digital currency ('digital dollar'). This is pretty much where the simplicity of it all ends. Things get really hairy (really fast) when central banks have to figure out how CBDCs fit into a traditional financ

A Changing Tide. But Not Really.

I almost titled this post, "An Open Love Letter to Rep. Darren Soto" but I thought that might be weird. I landed on [whatever it is] because it has recently occurred to me that there may be significant legislation around blockchain coming out of Congress this session. Rep. Soto (FL-09) has been one of blockchain's biggest champions on Capitol Hill and I expect that will continue to be the case. In anticipation of "big things blockin," I thought I'd revisit two blockchain bills that made it out of the House of Representatives during the last congressional session. Given the change in the make-up of the Senate, maybe we'll see them again. But maybe we won't need to see them again....? Stay tuned. The first of the two bills was the Blockchain Innovation Act. This legislation sought to have the Department of Commerce and Federal Trade Commission study the use of blockchain technology in commerce and assess its fraud and security risks and benefits. This

ABCs of DeF(i)

The summer of 2020 is notable for a host of reasons. A pandemic. #BLM protests. USPS shenanigans. But within the blockchain/crypto space, the summer of 2020 will be remembered as "DeFi Summer." Short for "decentralized finance," DeFi refers to a system of automated financial arrangements stored and executed on a distributed ledger such as blockchain. One of my business faves, Mark Cuban, recently touted the potential for DeFi to explode in the next 10 years. I may be biased but I agree; DeFi has the potential to revolutionize finance. Automation is Key We know that blockchain can facilitate peer-to-peer transactions in a trustless environment, that transactions happen without the need for a third party intermediary, and that an immutable record of the transaction is stored on the ledger. In other words, transactions happen automatically and records of transactions are incapable of being changed. This is why bitcoin was created. This is blockchain 1.0. We also know