Washington wakes up under the influence of crypto amid the fight against infrastructure
Unlike Wall Street banks, the industry has been able to entice thousands of crypto enthusiasts on social media to join the battle by providing a real-time game of Senate negotiations. Jack Dorsey, the senior executive at financial payments firm Square, called on his 5.6 million Twitter followers to fight billing language which he called “impractical.” Even Kiss bassist Gene Simmons was involved, announcing in a tweet that he supported an amendment to protect the industry.
“This has certainly been a wake-up call for crypto,” said Kristin Smith, executive director of the Blockchain Association, an industry lobbying group. “But on the other hand, I think Washington is starting to see that crypto is more powerful than anyone ever imagined.”
The episode, far from over as the Senate prepared to send legislation to the House, revealed the growing influence of digital currency startups which in just a few short years have grown into multi-billion dollar companies as investors were flocking to Bitcoin and other digital assets. Their rise is reflected in their operations in Washington, which were once dominated by idealists and academics, but now employ former elected officials and other seasoned government operators.
The problem in the lobbying battle was a proposal included in the infrastructure bill that would require cryptocurrency trading platforms and other entities defined as “brokers” to report digital asset transactions to the Internal Revenue Service. Lawmakers and the Biden administration included the provision as part of an offer to generate revenue for infrastructure projects – around $ 28 billion, according to an initial estimate – and also address long-standing concerns according to which cryptocurrency traders don’t pay the taxes they should.
Digital currencies such as Bitcoin and Ether give users the ability to conduct financial transactions without using fiat currencies like the US dollar, although they have mainly become tools for investment and speculation.
The tax proposal, which surprised many industry advocates when it was first revealed on July 28, marked the most important bill to target cryptocurrency in its short lifespan.
“Other industries were probably better prepared to avoid paying off,” said Ed Mills, Washington policy analyst at Raymond James. “It’s the first time they’ve really been on the menu.
Digital currency advocates and lobbyists immediately denounced the tax provision as a threat to the existence of the industry in the United States. transactions on the computer networks underlying the virtual currencies. They said it also threatens the development of decentralized financial services, or DeFi, which offer lending and trading over automated software protocols with minimal human oversight.
The pullback against the tax provision was prompted by groups such as the Blockchain Association, which is only a few years old, and Coin Center, a think tank formed in 2014 – a true veteran in terms of crypto. The groups were being prepared for the moment after having grown in size in recent years.
“A year ago we would have [had] about a quarter to a third of the number of organizations we work on today, ”Smith said of the cryptocurrency lobbying population in Washington.
For the tax fight, group efforts have been spurred on by powerful financial technology companies. Among them were Square, which disclosed $ 440,000 in lobbying spending in the second quarter of this year, and the massive crypto exchange Coinbase, which in April was the first major trading platform to go public and said spending $ 80,000 on outside lobbyists in the second quarter. Earlier this year, Coinbase hired former Goldman Sachs co-head of government affairs, Faryar Shirzad, to be its policy director. Shirzad also served on the White House National Security Council.
Influential investors have also joined the fight, including Andreessen Horowitz’s Marc Andreessen, Ben Horowitz, Katie Haun and Chris Dixon, who manage a $ 2.2 billion crypto venture fund.
Crypto advocates also had allies among digital rights and privacy groups, including the Electronic Frontier Foundation.
Together, the coalition found sympathetic ears on both sides of the aisle, causing headaches for the White House and the bipartisan group of senators who drafted the infrastructure bill. The authors of the legislation unexpectedly found themselves defending what was a minor part of the $ 550 billion infrastructure plan.
Lobbyists scored a clear victory by winning over Wyden, the top Senate Democrat responsible for drafting tax legislation. Wyden, who served in Congress for four decades, has long had a soft spot for emerging technologies.
His Democratic predecessor as the head of the finance committee, Max Baucus of Montana, was hired earlier this year as an advisor to the Binance digital currency exchange.
Wyden has teamed up with Toomey and Senator Cynthia Lummis (R-Wyo.) To propose an amendment to reduce tax reporting rules so they don’t capture software developers and miners. The proposal put Wyden at odds with the White House and his fellow Democrats. In response, the senses Mark Warner (D-Va.), Rob Portman (R-Ohio) and Kyrsten Sinema (D-Ariz.), In cooperation with the Biden administration, proposed an alternative amendment that would have fewer exclusions. .
Treasury Secretary Janet Yellen has personally spoken to Wyden to push back her amendment, an administration official said. She and the White House believed her language would tie the hands of the Treasury when the time came to craft regulations spelling out the details of how the rules work.
“Crypto’s success with Wyden is one of the most fascinating DC influence developments of 2021, and I think other industries will study throughout the decade,” said Jeff Hauser, who follows lobbying from companies as executive director of the Revolving Door project. .
Wyden said in a statement he had spent his career “working on the proposition that Congress needs smart technology policy responses that actually improve people’s lives.”
“When civil rights groups, tech experts and people in Oregon raised concerns that this provision could be interpreted as regulating independent developers and forcing programmers to create backdoors government officials, I took their concerns seriously, ”he said.
Toomey, who worked with Wyden on the amendment, recently revealed that he holds up to $ 30,000 worth of investments in Bitcoin and Ethereum cryptocurrencies, highlighting the growing awareness among lawmakers of a market that reached $ 2 trillion this year.
Mobilized by tweets from lawyers like Coin Center executive director Jerry Brito, who shared screenshots of not yet public legislation with his followers, the grassroots community of crypto users has flooded offices. of the Senate calls for the adoption of the Wyden-Lummis-Toomey amendment.
On Wednesday, the Kraken trading platform urged its clients in an email to “help us maintain the financial privacy and independence of crypto” by pushing for the language.
Much of the anger in the crypto world has centered on Portman, who wrote the original tax language. Brito said he was surprised by the proposal after “trying to talk to Senator Portman’s office for months on tax matters.” The pushback quickly forced Portman to respond.
“The mobilization we have seen has been incredible,” Brito said. “The cryptocurrency community has never been so united in DC.”
The deadlock on competing cryptocurrency amendments helped drag the infrastructure vote into the weekend.
For the industry, the fight will be the first in a long series to come. Policymakers in Washington are about to raise even more existential questions about how far the burgeoning digital asset market should be brought under control by the government.
For lawmakers, the episode created a new sense of urgency to catch up with a hot part of the economy that barely existed a decade ago.
“There is a great momentum that we should all understand this a lot better,” said Senator Shelley Moore Capito (RW.Va.).
Kellie Mejdrich contributed to this report.