Here’s What the New US Infrastructure Bill Means for Crypto Holders

Basically, the bill doesn’t raise taxes on cryptocurrencies, which are classed as property in the States and thereby fall under capital gains rules, subjecting people to different rates depending on their incomes and marital statuses. However, it would heighten reporting requirements for transfers worth $10,000 or more, broadening the definition of “broker” to include pretty much every entity that transfers cryptocurrency, from decentralized exchanges and DeFi platforms to miners and node operators.

This has sent much of the cryptocurrency community into a little panic, with some advising holders to get as much of their crypto as possible off exchanges and other platforms. However, the bill hasn’t actually been passed yet, and there’s every chance that it could be redrafted numerous times before becoming law. At the same time, while the bill may be bad for the US cryptocurrency industry in its current form, users of exchanges may not be significantly affected, insofar as their obligation to report capital gains won’t be changed.

Redefining Cryptocurrency ‘Brokers’

One of the problems with the section of the infrastructure bill dealing with cryptocurrencies and reporting is that it’s pretty vague. So vague that even well-informed lawyers can’t even precisely outline its ramifications at this stage.

Here’s the text (of the current draft) stipulating that ‘brokers’ have to report transfers to the IRS:

“Any broker, with respect to any transfer (which is not part of a sale or exchange executed by such broker) during a calendar year of a covered security which is a digital asset from an account maintained by such broker to an account which is not maintained by, or an address not associated with, a person that such broker knows or has reason to know is also a broker, shall make a return for such calendar year, in such form as determined by the Secretary, showing the information otherwise required to be furnished with respect to transfers.”

Basically, any cryptocurrency “broker” has to report transfers to individuals and entities that are not brokers. And in case you’re wondering, here’s how the current draft defines “broker”:

“Any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”

Such a broad definition of broker has worried much of the cryptocurrency community, with noted crypto-specialized lawyer Jake Chervinksy expressing his concern in a long Twitter thread.

Source: Twitter

For Chervinsky, what’s most disturbing about the infrastructure bill is that it would require even miners, proof-of-stake validators and wallet providers/developers to fulfill know-your-customer requirements and to demand their customers (or simply people they transfer funds to) to also fulfill these requirements. This would likely be unworkable, to the extent that mining may become unfeasible within the United States.

Source: Twitter

Other lawyers working within the cryptocurrency sector also suspect the bill may be intentionally vague, with potentially the ulterior motive of severely restricting the industry within the United States.

Source: Twitter

More specifically, former member of Wyoming’s Blockchain Task Force Caitlin Long tweeted that the bill isn’t clear enough to exclude node operators, miners and validators.

Source: Twitter

What the Infrastructure Bill Means for Bitcoin and Crypto Holders

As far as regular users, traders and investors are concerned, various prominent cryptocurrency figures have been quick to advise people to get their funds off exchanges, and onto their own hardware wallets.

Source: Twitter

The popular Twitter account Documenting Bitcoin posted a similar warning to holders around the same time.

Source: Twitter

However, as dramatic as such warnings may be, anyone in the United States with cryptocurrency on an exchange shouldn’t rush to withdraw their bitcoin, ethereum or whatever else just yet.

Firstly, even assuming that the bill will be passed in its current form, it wouldn’t come into force until January 1, 2023. So traders and investors would have about a year and a half to keep funds on exchanges and other platforms, before ‘needing’ to withdraw to a hardware wallet.

Source: Senate of the United States

Secondly, holders wouldn’t necessarily need to withdraw from exchanges anyway, insofar as the infrastructure bill doesn’t propose to change their existing tax obligation. People within the United States currently need to pay capital gains tax when they cash out a cryptocurrency investment, and they’ll still need to pay this tax from 2023 onwards.

Of course, more stringent surveillance measures may be in place by 2023, which would make it harder for traders (who use exchanges and other platforms) to evade paying taxes for which they’re liable. However, we at CryptoVantage can hardly advocate tax evasion, so from our law-abiding perspective the infrastructure bill won’t really change anything for the average cryptocurrency trader or investor.

That said, it certainly looks set to change things for the wider industry, particularly with its apparent inclusion of miners, node operators and the like. Even so, there’s a chance it will be narrowed in scope before being written into law.

Encouragingly, lobbyists (Coin Center, Blockchain Association) and sympathetic lawmakers have already managed to have it redrafted once, with the bill removing explicit mention of decentralized exchanges and peer-to-peer marketplaces. At the same time, even though it has been passed by the Senate, it needs to go back to the House of Representatives, which does include some more crypto-friendly lawmakers.

Source: Twitter

But while there’s no reason right now to conclude that all is lost, the market appears to have reacted a little negatively to the bill’s unveiling. Bitcoin, for example, sank from $42,000 to $39,600 in the space of a day, while the entire market has declined by over 3% in the past 24 hours (as of writing).

It’s possible that if the bill were passed in its current form it could severely depress the market, insofar as the industry would be restricted within the United States. Then again, it could provoke a wave of hoarding and long-term holding behavior within the States, in the sense that people could be forced to withdraw funds from exchanges and hold onto coins for longer periods of time.

This, however, remains highly speculative, as does the claim that the bill would devastate the American cryptocurrency industry. Because for now, it hasn’t been passed, and there remains every chance its final version will be noticeably softer.