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It is scarce for governance itself to affect cryptocurrencies. For many years, crypto insides have asked for crypto regulations and transparent rules for the industry. While the infrastructure bill won’t do that, it will affect the crypto space nonetheless.
Currently, the infrastructure bill is in the U.S. House. The piece of legislation carries a great deal of importance to the Biden administration. But, what does it mean for crypto?
A Background to the Infrastructure Bill
On August 10, 2021, the United States Senate passed the infrastructure bill. The piece of legislation looks to allocate $1.2 trillion towards improving infrastructure across the United States significantly. Known as the Infrastructure Investment and Jobs Act, this bill is now in the House of Representatives and is looking to pass. If it does, both houses of Congress will need to reconcile their versions. Also, they will have to present a final draft to President Biden.
The Infrastructure Investment and Jobs Act is 2,702 pages long. It results from a bipartisan agreement, with both parties looking to find a way to improve American infrastructure. The bill contains $550 billion in new spending, although additional funding gets allocated annually. In total, the bill has $1.2 trillion in funds separated and ready to go.
As part of the bill, we have:
- $110 billion to go towards improving roads and bridges across the country
- $66 billion to improve and maintain the railroads and rail transport
- $65 billion for updating power cables and lines
- $65 billion for expanding broadband internet access to rural areas and low-income communities
- $55 billion for improving America’s water infrastructure
- $47 billion to combat climate change and cybersecurity issues
And on and on it goes.
What Does the Bill Mean for Crypto?
A large part of the bill doesn’t even mention cryptocurrencies. However, there is a significant stipulation that has drawn the eye of industry insiders.
One area that has drawn attention in the infrastructure bill is the government’s requirement for crypto transfers. Essentially, the government is looking to impose stricter reporting standards on transfers of cryptocurrencies. These standards will cover transfers from brokerage services to non-broker accounts. So, these crypto brokers will need to report to the Internal Revenue Service (IRS).
Take stockbrokers, for example. Most companies have to report their customers’ sales to the IRS regularly. The infrastructure bill is looking to bring the same standard to crypto brokers. The move could result in tighter regulation of the crypto industry, especially when it comes to tax compliance.
Congressional accountants estimate that this could result in about $28 billion in revenue for the government over ten years. In turn, the government could use these revenues to pay for several things listed in the infrastructure bill.
Is This a Good Thing?
By expanding reporting requirements for crypto brokers, the infrastructure bill could help crypto. If anything, it will clear up some of the vagueness that has surrounded the industry for so many years. So, besides bringing in more tax revenues to the government, this requirement will also enhance the legal classification of cryptocurrencies.
However, there are some drawbacks to this proposal as well. Most importantly, the law doesn’t necessarily define who a “broker” is. For all we know, the government could classify some people as brokers, unlike how it does with the traditional market. So, people who wouldn’t fit the “broker” description would have to meet these reporting requirements.
We already know who crypto brokers are – exchanges, trading platforms, etc. But, the infrastructure bill could expand that definition also to cover stakers, software developers, etc. As expected, this law could make it more difficult for individuals and small businesses to thrive in the crypto space.
What to Expect?
This brings us to the second problem. While crypto brokerage services like exchanges and trading platforms have customer data, others don’t. For example, many actors in blockchain do not have access to their customer data because of the industry’s nature. Among them are node validators, software developers, stakers, and more.
So, they will now have to report data that they don’t have to the government. So, by definition, compliance with the infrastructure bill’s requirements will be impossible.
Another aspect that seems to be causing controversy is the bill’s Tax Code Section 6050I. According to a crypto advocacy group, this section could make receiving digital assets illegal if they aren’t correctly reported. The tax code applies to anyone who gets over $10,000. These people will have to register their sender’s information to the government, per the code.
The section could be challenging. Apart from obtaining data, it could also reduce businesses’ desire to use cryptocurrencies for payments. On the other hand, if they have to report everyone that sends them over $10,000 in crypto, what’s the point?
So, What’s Next?
For now, the world waits to see if the infrastructure bill will pass in the House. Speaker Nancy Pelosi delayed the vote early on Friday, showing that the Democrats don’t have enough votes to get the bill to pass. But, it should do the account within the next week or two.
If the infrastructure bill does pass, the crypto industry will need to spend more effort to point out its flaws. It is worth noting that the legislation in itself isn’t bad for crypto. But, it’s not the perfect foundation to stand on as we await proper regulation.