There’s a silver lining in Congress’ efforts to impose a tax on crypto transactions: The U.S. finally accepts crypto is part of the economy.
Crypto just experienced a major watershed – and it’s time to recognize the silver lining.
Crypto suddenly became part of the U.S. Senate’s debate over the infrastructure bill, and the outcome in my view is the greatest regulatory certainty crypto has ever had in the U.S.
Out of seemingly nowhere, the infrastructure bill introduced an estimated $28 billion tax on the crypto industry. Many in the industry expressed outrage and concern. The crypto-related amendments that were introduced and debated in the Senate focused on a battle over how tax reporting will work and whom it should apply to.
Jeff Bandman is a former senior official at the Commodity Futures Trading Commission who led the agency’s initial virtual currency and blockchain work and was founding director of LabCFTC. He is currently principal of Bandman Advisors.
Here’s the silver lining – and for me a huge “Aha” moment. If the U.S. government thinks it is going to raise $28 billion in taxes from the crypto industry in the next 10 years, it means crypto is here to stay. It means crypto is going to be a new cornerstone of the U.S. economy.
Let me say this another way – the government is going into partnership with the crypto industry.
The government didn’t abolish tobacco – it taxes it. The government taxes alcohol. The government taxes capital gains and income, and all kinds of other things. It does not tax illegal narcotics, it does not tax prostitution (except in Nevada). And once the government gets used to receiving tax revenue, it is almost unprecedented for that to stop.
My first “Aha! Moment” that crypto was here to stay occurred back in 2013-2014, when the government seized copious quantities of bitcoin (BTC, -4.88%) from the illegal Silk Road criminal enterprise.
And what did the government do with all those bitcoins? It auctioned them off to the American people. Wow!
When I teach my introductory courses on crypto-assets law, policy and regulation, in the very first class, I ask the students this riddle: How is bitcoin like a speedboat? (Actually I put up photos of both.)
There is no single right answer, and the responses are clever and creative. It is liquid. It is volatile. It is powerful. It moves rapidly, it moves frictionlessly. Your two happiest days are the day you buy it and the day you sell it.
The answer we arrive at is that the government auctions off seized bitcoin just like it auctions off other seized items – boats, cars, houses and furniture. The government does not auction off narcotics or AK-47s.
That U.S. government auction of the Silk Road bitcoins told me that bitcoin was not even in a gray area where it might be made illegal. If the government was selling it, it was going to be legal and stay legal. And since that time, there have been many more auctions by the U.S. and other governments around the world – this has become so routine that government bitcoin auctions are not even considered newsworthy anymore.
So this summer, this August, I hope the infrastructure bill gets refined and strikes the right balance. It does matter. So far it has not been fixed to address the industry’s concerns. But even if it gets it wrong, we have crossed a major watershed in the United States. And once we cross it, we are not going back.
This is great news for the crypto industry and for the next phase of innovation to deliver powerful benefits to consumers and society as the U.S. continues its leadership.