The recent bill H.R. 3684, also known as the infrastructure bill, has been hotly debated in the Senate. The bill requires massive amounts of funding, and one of the ways lawmakers are trying to secure those funds is through cryptocurrency brokers. Specifically, the bill would require brokers who deal in digital assets to report customer information, though many have argued that the way it defines “broker” in this sense is too broad.
As it makes its way into the House of Representatives, many people in the crypto-trading space are uncertain about what the bill means for their industry.
Return Requirements for Brokers
One of the points of contention on the infrastructure bill is the return requirement for transfers of cryptocurrencies. In particular, those transfers which involve covered securities that are digital assets from accounts maintained by the broker to other non-broker accounts are subject to the same reporting requirements as any other securities. That means reporting customer information to the IRS.
The problem many have pointed out is with the definition of “broker.” Under the new bill, the definition is expanded to include those “responsible for and regularly providing any service effectuating transfers of digital assets on behalf of another person.” It’s unclear whether that includes people like bitcoin miners, exchange developers, or others involved in the industry.
How It Might Affect Cryptocurrency Trading
By expanding reporting requirements to those who trade, sell, or otherwise deal in virtual tokens, the bill would help clear up some of the ambiguity surrounding tax requirements in this area, potentially bringing in additional tax dollars. However, there are some potential drawbacks as well.
Primarily, the broad definition of “broker” under the new law could mean people who wouldn’t normally be considered brokers would have to meet highly exacting reporting requirements. That can already be difficult for small enterprises or individuals, but added to it is the fact that cryptocurrency and blockchain technology don’t facilitate the gathering of customer information. For many affected parties, that could mean trying to report information that simply isn’t available.
Ultimately, it depends on how the rule is interpreted.
While it may appear to be a major game changer (for the worse) for cryptocurrency, the bill is unlikely to kill off crypto trading entirely. Other legislative avenues are available for those who want to clarify the bill’s definition or introduce exclusions for decentralized markets, and it seems likely that miners and developers won’t be expected to report customer information that they don’t have. Time will tell what actually happens, however.
The infrastructure bill is just one example of how the policies and regulations surrounding cryptocurrency are constantly evolving. The industry is likely to be in flux for the foreseeable future, and that means stakeholders in the industry are going to need to be flexible if they’re going to keep their liabilities to a minimum.
When trading cryptocurrency, it’s important to keep up-and-coming laws in mind when conducting business on the blockchain. Legal counsel is invaluable in this area, so it’s best to involve an attorney when making policies and procedures for your firm.