U.S.: Congress at work on cryptocurrency regulation. Coinbase’s fears

U.S.: Congress at work on cryptocurrency regulation. Coinbase’s fears

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August 23, 2021 by J.D. Smith
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The United States is increasingly focused on the aspect of cryptocurrency regulation.  Not only is the recent Infrastructure Bill likely to introduce significant changes, but in Congress, according to Forbes, there would be as many as 18 bills filed focusing on cryptocurrencies, blockchain, and CBDC (Central Bank Digital Currencies). In the beginning, was Libra What

The United States is increasingly focused on the aspect of cryptocurrency regulation

Not only is the recent Infrastructure Bill likely to introduce significant changes, but in Congress, according to Forbes, there would be as many as 18 bills filed focusing on cryptocurrencies, blockchain, and CBDC (Central Bank Digital Currencies).

In the beginning, was Libra

What probably turned the spotlight on the sector was Facebook when it attempted to introduce Libra (now Diem), its stablecoin. When Mark Zuckerberg launched the whitepaper, in fact, among the authorities, there was a widespread fear that the social network’s currency could become an alternative to the dollar.  

But before protecting monetary sovereignty, U.S. congressmen/women seem more committed to creating a regulatory framework that can make it so that the government can reap fiscal benefits from cryptocurrencies. 

Some bills such as:

  • Safe Harbor For Taxpayers With Forked Assets Act of 2021 (H.R. 3273), introduced by Tom Emmer,
  • Infrastructure Investment and Jobs Act (H.R. 3684), introduced by Peter DeFazio.

Some bills attempt to define the industry to align with current investment regulations, such as the Securities Clarity Act (H.R. 4451), also introduced by Tom Emmer. Warren David’s Security Clarity Act goes in the same direction.

Then there are various bills geared towards the application and exploitation of blockchain technology.

Finally, there are various bills dedicated to introducing the digital dollar, including the Digital Currency Study Act of 2021 presented by Bill Foster and French Hill.

U.S. cryptocurrency regulation focused on stablecoins

But as mentioned, of most concern to U.S. Treasury Secretary Janet Yellen are stablecoins. The reference is not only to Facebook’s Diem but also to Tether. The queen of cryptocurrencies from the stable value, in fact, counts a capitalization that has exceeded 60 billion. Its growth has posed problems with the authorities, concerned about its use and especially wanting to have a regulatory framework that forces stablecoins to prove the reserves on which they rest.

It must also be said that in a horizon of economic development that sees the United States projected into a future launch of the digital dollar, the government will have every interest in creating laws that make it easier to use a digital dollar, rather than Tether or Diem. 

It is always a question of monetary sovereignty. The United States does not intend to abdicate because it would weaken the U.S. dollar globally, a risk that Washington can’t possibly take.  

Infrastructure Bill, Coinbase’s fears

Meanwhile, a law that has brought cryptocurrencies to the attention of Congress is the Infrastructure Bill, recently approved by the Senate and now in the hands of Speaker Nancy Pelosi. She will have to schedule it in the House. 

The bill has been the subject of much debate because, in an attempt to introduce tax provisions for the sector, it puts exchanges and block validators on the same level, rather than smart contract developers, for their role in transactions, with a simultaneous reporting requirement to the IRS. In practice, all are considered brokers, when in reality, only exchanges fully meet this definition. 

Coinbase has already spoken out on this topic several times on behalf of its CEO Brian Armstrong. The entire industry has actually tried to explain to politicians that this vision did not respond to the reality of an industry where decentralization reigns. 

In a recent blog post by Coinbase, the concept is reiterated with the following words:

“The best first step would be to issue regulations so that digital asset brokers would be permitted to issue the same third-party reporting that brokerage firms, like Fidelity and Charles Schwab, issue today. It is not a good first step, and certainly not good tax policy, to require non-brokers to report on transactions for people who are not even their customers.”

In fact, according to Coinbase, the concept of brokers, even for cryptocurrencies, should only include actual intermediaries with clients, a role that precisely exchanges and Coinbase play. 

In fact, the exchange says it is in favor of regulation and also taxation of cryptocurrencies. Still, there is a need to dialogue with the sector without fighting battles against ghosts. 

The risk otherwise is to cede the leadership of innovation to other countries. And so goodbye cryptocurrencies and goodbye taxes related to them. Another risk that the United States should not afford to run.