A lot has been said about the $1 trillion federal infrastructure bill, but there’s very little explanation of how lawmakers decided to collect $28 billion in tax revenue from the crypto industry.
It’s not a new tax, per se.
In its current state, the nearly 3,000-page bill redefines a broker as anyone “effectuating transfers of digital assets on behalf of another person.” That would mean a wide swath of crypto service providers and firms would have to begin collecting broker-specific tax information from their clients.
For some companies – particularly miners, decentralized exchanges or even individual developers who contribute to open source projects – that would be quite the challenge.
While the Joint Committee on Taxation has published its $28-billion estimate of how much revenue the change would generate, it hasn’t shared details on how it decided which “digital asset” companies meet the proposed definition.
New broker definition could force crypto companies offshore
“If this bill passes, it will be a huge blow to the industry, but also a larger blow to just technology. In order for America to stay a leader in technology, we have to innovate,” said Ian Balina, founder and CEO of Token Metrics.
He left a job heading up North America sales for IBM Analytics four years ago to move into crypto. Since then, he’s become a general partner at blockchain advisory firm 100X Advisors and founded Token Metrics, an investment research firm.
Balina said he’d be reluctant to move his company’s headquarters out of Austin, Tx., but that the broadening of the broker definition in the bill could make it difficult to operate in the U.S.
“For now, we’ve all just been working with different lobbying groups to try and get the word out, you know, trying to rally the troops to stop this from happening,” he said. “I would love to stay here and work in the U.S., but if this country makes it hard for any company to be compliant here, then we do have to start exploring other options.”
Retail-oriented crypto firms would face the biggest burden
That paints a dire picture. But Jack McDonald, CEO at Standard Custody & Trust Co., said he expects it to impact retail-oriented businesses more than ones like his, an institutional-grade digital asset custodian.
“For us, as I currently understand it, I don’t see much of a change because we’re already very stringent and we’re regulated by the New York Department of Financial Services as a trust bank. We collect the requisite AML, KYC information we have to store on our blockchain,” he told Crypto Investor.
“The question is for entities that may not customarily store that information. The burden them is going to be significantly greater.”
McDonald, who’s also CEO at PolySign, a security solution for managing assets on a blockchain, has also been in the crypto space since 2018. Before that, he was president and CEO at Conifer Financial Services, a San Francisco-based asset manager, and headed up West Coast equity sales clients as a managing director at UBS.
He also anticipates the bill could push some companies offshore, even if he considers his firm relatively safe from the fallout.
“Not that they’re necessarily averse to obtaining and providing information, but more about the costs associated with it,” he said, “and the operational burden.”
Lawmakers are still reviewing the bill and debating what should be in the final version that gets put up for a vote, which is expected before the end of the week.
Crypto industry wants regulatory clarity first
McDonald echoed what many in the crypto space have said before: Regulatory clarity needs to come first.
“There's a whole broad range of treatment on what the underlying assets are and they differ. Sometimes they're securities, sometimes a commodity, sometimes they're a currency and sometimes none of the above or all the above,” he said. “And so it's a little bit of hot potato with the regulators. I heard some stat recently there are 20 or 30 different regulators in the U.S. that have some elements of regulatory oversight for some corner case or portion of this industry and that makes it really difficult to navigate.”
The sentiment was shared by a crypto trading exec, who could only share their thoughts with Crypto Investor anonymously.
“If we get any type of clarity around regulation, any clarity, it’s going to be a relief,” they said. “People just need clarity on what the industry’s going to look like. And until you have that, it’s still a nagging unknown.”