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How the Infrastructure Bill Could Harm the Crypto Market

Thursday, August 12, 2021 04:06 PM | Nick Dey
How the Infrastructure Bill Could Harm the Crypto Market

Over the course of the year, cryptocurrencies have enjoyed everything that life has to offer. From YOLOing around with the second richest person in the world, to being blocked by its once best friend in China (or at least the home of most of the miners), 2021 has been wild for crypto currencies.

Bitcoin and company got off to a fast start this year, racing higher after Tesla (TSLA) began accepting Bitcoin as payment while making a $1.5 billion investment in the currency. This, coupled with constant cryptocurrency-related tweets from billionaires like Elon Musk and Mark Cuban, helped Bitcoin reach a high of $64,234 on April 14, which represents a 119.59% increase from its January 1 price of $29,252.

However, the fun for cryptos started to slow after Musk appeared on SNL and joked that Dogecoin - the meme-inspired crypto currency that originally created as a joke - was a hustle, after he had spent months tweeting admiration for the coin. Things worsened from there after China banned its financial giants from dealing in cryptocurrencies. From its high on April 14, Bitcoin plunged 53.48% back to its lowest point since January at $29,884.

Bitcoin and other crypto currencies have pared their losses, with Bitcoin rising 52.48% to its August 10 price of $45,567. This leaves the digital tokens 40.97%, or $18,667, off its high and up 55.77% from its January 1 price.

That's a pretty solid return for the year, and considering Bitcoin was at just $11,410 twelve months ago, most Bitcoin investors are still enjoying some pretty outsized returns.

However, despite solid returns to point at on paper, the crypto markets have been in a more fragile state of late as losing half your value during a short period of time (or any period of time for that matter) has never inspired investor confidence.

The roadblock that stands to threaten cryptos this time around is President Biden’s infrastructure bill, which has just passed in the Senate. After passage was delayed due to heated debates over a cryptocurrency provision that expands cryptocurrency tax reporting requirements, the bill is on its way to the House where Representatives will have the opportunity to amend the bill.

The costly provision aims to close the "tax gap" by increasing the number of companies that are considered brokers, which could force these companies to report names and addresses of individuals that trade cryptos.

How far did the scope widen? Well, "broker" got defined as anyone "responsible for and regularly providing any service effectuating transfers of digital assets on behalf of another person." By this definition, both miners and software developers could be on the hook for reporting names and addresses for tax purposes.

This is a problem for crypto investors because it could end up requiring developers, miners, hardware manufacturers, and other crypto-related businesses that may not have this kind of customer information. This paints a worrisome road ahead if passed, as these companies wouldn’t have the information to comply with the IRS.

Critics of this amendment say that, by forcing these companies to surveil their users, the U.S. could hamstring innovation in the industry, particularly within its own borders.

This would be because there are now new barriers to entry that require more than just some code and a dream, meaning that decentralized blockchain technology for all could soon become more exclusive as more capital would be required for startups to adhere to reporting requirements. The result of this wording would indirectly harm individual investors and harm the market by pushing crypto businesses and trading overseas.

Thankfully for crypto investors, developers, and miners alike, the bipartisan bill that passed out of the Senate is unlikely to make it through the House unchanged as progressives vow to tank the bill if more care-economy and climate change funding isn’t passed in tandem with the current bill.

A holdup and eventual failure of the crypto provision would be great for crypto investors, while if this passes, it could threaten to topple the market’s current rally and potentially dim the outlook for the industry.

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