Crypto Regulation Needs Clarity, But Rushing It Is A Bad Idea – Forbes

Rushing through crypto regulation will cause more harm than good, but having more substantive conversations is a good start.



Current proposed language in the infrastructure bill working its way through Congress will lead to unforeseen consequences that will damage the crypto space at a fundamental level. That said, the fact that legislation is being discussed at these levels is a (small) step in the right direction.

Seemingly a contradictory statement and idea, the codification and inclusion of this section of the infrastructure bill actually addresses one of the fundamental fears that some market participants have had; that the government would eventually regulate crypto out of existence. Crypto bans, or the equivalent of a ban on cryptocurrency transactions, are discussed often but that misses the broader point. No matter what sector is being analyzed, an underlying truth of business is that business dreads uncertainty, and that is exactly what the blockchain and crypto sectors have been operating with since inception.

Despite this uncertainty, however, the ecosystem has continuously developed and grown in an array of new directions, but resolving some of the tax and reporting ambiguity around crypto would go a long way to increasing business confidence. That said, simply increasing taxes and the compliance burden on the crypto sector is not a cure-all to the regulatory questions that still surround the area. Additionally, there are several other factors that are a direct result of this process seemingly being rushed to completion in the infrastructure bill.

Let’s take a look at some of the implications of this language.

Refine, with care. Some of the conversation around this proposed clause has to do with the reporting obligations for taxpayers and exchanges as they are connected to crypto transactions. The conversations around this allegedly increased reporting requirements misses the fact that crypto transactions are already robustly reported. The Internal Revenue Services (IRS) has been actively pursuing and collecting tax revenues linked to crypto transactions, and has also increased the personnel and technology assets allocated toward cracking down on crypto tax evasion.

That said, the proposed language inadvertently lumps together crypto exchanges – that by and large have improved reporting and disclosures substantially over the last year or so – with a large swath of non-financial intermediaries such as miners, network validators, and other third party organizations. Most worryingly is the fact that these organizations often do not even have the information to file appropriate paperwork with the IRS or other policymakers.

Improving and increasing the consistency of crypto regulation would be a welcome development, but rushing this process is a bad idea.

Will not be outlawed or banned. This is a point that cannot be overemphasized; by codifying and integrating crypto transactions and taxes as pay-for in a major piece of legislation means that, in essence, crypto cannot be outlawed or banned. Calls for increased cracking down on crypto transactions, especially if there is a hack that utilizes crypto for ransom payments, has continuously loomed over the sector. Particularly given the increased institutional interest in the crypto sector, having the increased certainty that appropriate legislation would provide would be beneficial for the space.

The likelihood of crypto actually being outlawed or banned was always quite low, especially in the United States, but by incorporating crypto taxes – and by extension the underlying transactions – into future legislation minimizes the risk even further. That said, the current language in this bill is not up to par, and should be reworked significantly, but does point to the (now) mainstream legitimacy of crypto at large.

More usability. Ironically enough considering that the original idea of blockchain and cryptoassets was to serve as a payment mechanism, the primary lens through which crypto is viewed tends to be as an investment rather than a medium of exchange. In order for the expected revenue to be collected, with projections of approximately $30 billion to collected on a recurring annual basis, individuals and institutions will need to be conducting transactions with cryptoassets.

Setting aside the volatility linked most commonly to bitcoin, there have been efforts launched at the state and local level to facilitate crypto transactions and payments. Integrating crypto into this legislation means that there will most likely be additional efforts – possibly at the national level – to make actually conducting transactions with cryptoassets simpler and easier for individuals and institutions alike.

Again, this legislative language is not perfect by any means and needs to be reworked to avoid negative ripple effects in the space, but has at least managed to elevate the conversation around crypto to the highest level of government.

Crypto regulation has, and will continue to be, a complicated and fast moving area that evolves and changes as the ecosystem evolves and continues to expand into new areas. An increased focus on taxes and compliance are normally not viewed as a positive development, and it is also important that a balance is struck between the apparent desire of policymakers to take action to clarify certain open items with the potential ripple effects of these actions. Crypto regulation is important for the continued growth of the space, and it is worth the time to get it right; rush jobs serve no one well, and generally do more harm than good.