New rules proposed by U.S. lawmakers affecting the regulation of cryptocurrencies, establishment of stablecoins, and taxation of digital assets could help secure at least some of the funds required for a $1 trillion infrastructure bill introduced on Monday.
The new rules were laid out in two separate bills. The first was the Digital Asset Market Structure and Investor Protection Act (DAMSIPA) introduced by Rep. Don Beyer (D-VA) on July 28. The second was the $1 trillion Infrastructure Investment and Jobs Act (IIJA), which included a number of cryptocurrency-related provisions.
DAMSIPA's central focus appeared to be the clarification of responsibilities for various financial regulators in regards to cryptocurrencies and other digital assets. That clarification would purportedly make it easier for those agencies to regulate these sectors and protect Americans from crypto-related financial crimes.
The bill would also explicitly allow the Federal Reserve to issue a central bank digital currency (CBDC). This has become an area of focus as the Bank for International Settlements, the International Monetary Fund, and the World Bank have signaled their approval of CBDCs and China has touted the digital yuan's success.
Beyer's office said DAMSIPA would also "clarify that digital assets, digital asset securities and fiat based stablecoins are not U.S. legal tender, and provide the U.S. Treasury Secretary with authority to permit or prohibit US Dollar and other fiat-based stablecoins." This greatly increases the regulatory oversight of stablecoins.
The bill would formalize "the regulatory requirements for digital assets and digital asset securities to comply with anti-money laundering, recordkeeping, and reporting requirements" as well. That should make it much easier for the IRS to determine how much a particular cryptocurrency or digital asset owner would owe in taxes.
Cryptocurrency wasn't the central focus of IIJA—the 2,702-page bill was primarily concerned with spending related to transit systems, broadband deployment, climate projects, and other U.S. infrastructure. But cryptocurrencies were among the many other seemingly unrelated subjects that were affected by provisions in the bill.
The New York Times reported that the bill's crypto-related provisions mostly focused on tax enforcement by requiring "cryptocurrency brokers and investors to provide more disclosure about their transactions" to the IRS. (Which, again, would make it easier for the agency to figure out the government's cut of those transactions.)
The Joint Committee on Taxation said these changes might generate an additional $28 billion in tax revenues over the next decade, according to the report, simply by giving the IRS additional insight into cryptocurrency-related transactions. That isn't much in context of the $1 trillion bill, but it could seem like it to those being taxed.
Pushback from multiple fronts
These provisions drew criticism from the cryptocurrency industry as well as privacy activists. The Electronic Frontier Foundation (EFF) criticized the language used to establish these new rules, for example, because it lacked the nuance required to properly regulate something as complicated as cryptocurrency. The EFF said:
"The broad, confusing language leaves open a door for almost any entity within the cryptocurrency ecosystem to be considered a 'broker'—including software developers and cryptocurrency startups that aren’t custodying or controlling assets on behalf of their users. It could even potentially implicate miners, those who confirm and verify blockchain transactions. The mandate to collect names, addresses, and transactions of customers means almost every company even tangentially related to cryptocurrency may suddenly be forced to surveil their users."
The new rules DAMSIPA introduced for stablecoins were also criticized. "They effectively make it illegal to not only issue fiat-based stablecoins but to also use them," Axler Goldich partner Marc Goldich told CoinDesk. "It would be interesting to see how that is enforced and how it relates to algorithmic stablecoins."
The bill also made it clear that existing stablecoins wouldn't be exempt from these restrictions, which means those who already own the coins might suddenly find themselves unable to use them. That, combined with the emphasis on issuing a CBDC, could be seen as an effort to prioritize a digital USD over existing stablecoins.
It's clear that U.S. lawmakers believe the cryptocurrency industry is ready—or overdue—for additional rules that could help fund infrastructural improvements. The likelihood of a Federal Reserve-issued CBDC also seems higher than it was before, which shows the government could be ready to embrace crypto, too.
But it's also clear that the rules introduced by DAMSIPA and the IIJA provisions are going to be contentious. What that means for the cryptocurrency industry, the enthusiasts who participate in it, and the financial sector remains to be seen.