The Crypto Provision: A Backdoor Crypto Ban
The final boss.
Sorry for the scary title… but it appears that there’s a real imminent threat to Bitcoin and the broader crypto industry in the United States. Over the past few months we’ve had to deal with rumours that China would ban Bitcoin mining, and then watch that totally play out. We had to deal with the king of ESG, Elon Musk bash Bitcoin for its negative impact on the environment, and then watch Tesla stop accepting BTC as payment.
The market was shook and subsequently, we quickly saw the bottom drop out of the entire crypto market. While the sentiment was at its lowest point, we got to work. Slowly, hashrate started to come back online as Chinese miners were shipping to more friendly jurisdictions and at the same time we realized that as big of an event as it was, Bitcoin quite easily survived. The Bitcoin Mining Council popped up so that the industry could come together to counter the FUD with actual data points surrounding the mix of renewable vs. non-renewable energy usage.
As it turns out, the China ban was a blessing in disguise. Not only did it mean that the narrative “China controls Bitcoin” was dead (for good), but it also immediately annihilated dirty coal mining that was prevalent in some Chinese provinces. At the same time, the Mining Council started issuing reports that showed Bitcoin’s threat to the environment was grossly overstated. Moreover, Bitcoin was more green than not and trending in the direction of becoming exponentially more green over time.
The price bounced off of $29k like an *searches for relevant reference* olympic pole vaulter! We did it! The bull market can resume in peace… right?
It appears not. There is something potentially more scary right around the corner — forget around the corner — it’s now staring us right in the face.
What we saw at the desk
Everyone seemed to be in a great mood this week amidst positive price action indicating the resumption of the bull market and in anticipation of the Ethereum London hard fork.
Would the most extensive upgrade to Ethereum in years be successful? We got our answer on Thursday as EIP-1559 was activated and the hard fork was in fact successful. The apparent success of the upgrade is getting priced in as ethereum outperformed this week. In short, investors are excited about the notion of ethereum becoming a deflationary cryptocurrency in the future which is now tangible.
A bill to fund infrastructure is about to ban crypto.
As ridiculous as it sounds, the 2000+ page bill (as seen in the picture above) contains a provision that could do great harm to the crypto industry. What does this have to do with infrastructure? This provision is actually buried in the section of the bill relevant to covering the costs of the other proposals. Generally, bills around government spending need to explain how the government will cover the costs. Usually, it comes down to increasing taxes or improving tax compliance.
Basically, this bill is presuming that huge swaths of crypto users are engaged in mass tax avoidance and this provision seeks to cover this $2 trillion (yes, trillion with a T) with a $28 billion coming from improving tax compliance. You want to tax crypto $28 billion? Jay Powell has been printing $30 billion per week for the last year… so gross.
A little tax compliance doesn’t sound so bad, right? Well, the way it was written truly shows Washington’s misunderstanding of the digital asset space. The current measure included in the bill is way too broad. Essentially, it would force miners, developers and other non-financial intermediaries to face the new reporting requirements. This is either a gargantuan misunderstanding or a backdoor kill switch on crypto because there is no way that those parties listed above would be able to comply.
Thankfully, we have a few US Senators fighting for us. Cynthia Lummis worked with Senate Finance Committee Chairman Ron Wyden and Senator Pat Toomey to introduce an amendment that clarifies who is considered a “broker” and who is not to be subject to the new reporting requirements. The introduced amendment explicitly excludes validators (nodes), hardware and software wallet makers, and protocol developers from the tax reporting provisions.
Crypto Twitter (CT from now on), rallied behind the new amendment and on the surface it seems that tens of thousands (if not hundreds of thousands) of people called in to their Senators to show support.
It’s crucial to remember that when governments try to take away freedoms and grow their ability to control their population, the only tools to fight it become exponentially valuable. We’ve seen it over and over again where bitcoin trades at a premium under times of tyranny and geopolitical distress. Let’s hope that this bill becomes better understood and that the amendment passes. Either way, Bitcoin has been through far worse and has come out of the other side much stronger. HODL hard!
On a lighter note, it was all smiles last Thursday as most of our team was in town and we were finally able to get together in person for the first time!
We wish you all a wonderful weekend!
In case you missed it…
- Senators fight for amendment https://www.washingtonpost.com/politics/2021/08/06/crypto-bitcoin-infrastructure-senate/
- JPMorgan bends the knee https://www.cnbc.com/2021/08/05/bitcoin-jpmorgan-led-by-jamie-dimon-quietly-unveils-access-to-a-half-dozen-crypto-funds.html
- Is Uruguay next up to make Bitcoin legal tender? https://finance.yahoo.com/news/uruguayan-lawmaker-proposes-bill-treat-195749926.html
- Fidelity buys 7.4% of Bitcoin Miner Marathon Digital Holdings https://www.forbes.com/sites/anthonytellez/2021/08/04/fidelity-buys-74-of-bitcoin-mining-company-marathon-digital-holdings-across-multiple-funds/
- SEC’s Gensler let’s everyone know there’s a new sheriff in town https://markets.businessinsider.com/news/currencies/gary-gensler-sec-crypto-regulation-bitcoin-defi-fraud-stablecoins-rules-2021-8
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