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An important legislative crypto provision appears to be dead… what it means for the sector… bitcoin looks bullish nevertheless
There’s been a last-minute drama playing out in Washington D.C. that’s flown under the radar of most investors.
But if you’re a crypto investor – or are considering becoming one – you need to know what’s happening.
You’re likely aware of the $1.2 trillion infrastructure bill that’s been making its way through Congress in recent weeks. What you might not be aware of is an 11th-hour cryptocurrency tax provision that was tacked onto the bill last week.
Specifically, crypto was put in the crosshairs as a way to generate an estimated $28 billion in tax revenue over 10 years, which would go toward infrastructure spending. The provision targets crypto brokers.
But the issue here goes far beyond taxes.
As our crypto specialist, Luke Lango, wrote to his Crypto Investor Network subscribers on Saturday, the bigger issue is how the legislation threatens to bog down the crypto sector through bureaucratic red tape that stifles growth.
Here’s Luke, providing the big-picture overview:
Long story short, there is a proposal in the new infrastructure bill that would increase tax compliance by cryptocurrency market participants.
Sounds fair enough.
But that proposal includes crypto miners, and it would require miners to file a type of 1099 form for certain transactions that those miners do not have the capacity to file, because by nature of the blockchain, they do not know who their users are.
Basically, D.C. is trying to shut down cryptos in a sneaky way by mandating very specific tax forms for miners that they physically cannot file.
If this proposal passes, some argue it would be a big negative for cryptocurrency usage and adoption in the U.S. as it would severely constrain mining capacity.
***Last week, Sens. Ron Wyden, D-Ore., Pat Toomey, R-Pa., and Cynthia Lummis, R-Wyo. introduced an amendment that removes much of vagueness in the original language
Specifically, the amendment clarified the definition of a “broker,” excluding validators, hardware and software makers, and protocol developers.
This is important because the current definition would target miners, developers, stakers, and others who do not have customers. But without customers, they don’t have access to the information needed to comply.
Meanwhile, a second, competing amendment came from Sens. Rob Portman, R-Ohio, Mark Warner, D-Va., and Kyrsten Sinema, D-Ariz. But this one was far less hospitable to the crypto industry.
Here’s CNBC with more on the language in their amendment:
… based on prior revisions described by Portman, some believe it will leave the door open to a broader definition of “crypto broker” and will potentially subject more crypto investors to these higher taxes.
It’s important to note that the crypto sector is up in arms not so much about the tax issue – it’s due to the compliance rules and red tape that would limit growth.
From Decrypto, explaining the danger in the Portman amendment:
Portman’s proposal to include only PoW projects within the exemption is unpopular in the crypto industry because many projects in the decentralized finance (DeFi) space do not, and often cannot, identify their customers so making them subject to tax reporting could force them to shut down or leave the U.S.
Some have suggested that the Portman plan is an “attack on DeFi” while Wyden noted that it would hurt the climate by favoring the most energy-intensive segment of crypto, and also hurt innovation.
Ryan Selkis, the founder of research firm Messari, suggested that crypto opponents in the U.S. government were pursuing an even more cynical plan.
Namely, he claimed their plan is to cripple the industry by banning PoS networks (like Ethereum will soon be) on compliance grounds, and then attack Bitcoin by means of environmental policy.
Yesterday afternoon, it appeared that the Wyden camp and the Portman camp had found a compromise in the provision’s language.
However, at the last minute, Sen. Richard Shelby, R-Ala., stopped an effort to vote on the latest crypto language. He wouldn’t allow it to go forward because he wanted a separate vote on his own amendment to increase military funding, and Sen. Bernie Sanders I-Vt., wouldn’t go along with that vote.
Because this process requires “unanimous consent” among senators, Shelby’s vote holdout meant that the new crypto language didn’t see sunlight.
As I write Tuesday early afternoon, it appears the original crypto language will be a part of the bill that’s scheduled to be voted on today.
This is political gamesmanship at its worst.
As Ted Cruz, R-Texas, put it, “Billions of dollars of value are going to be destroyed.”
***You would think this would have sent bitcoin’s price sharply lower as nervous crypto investors bailed
However, as news broke of the impasse yesterday evening, bitcoin’s gains on the day held up. And as I write, bitcoin is only slightly lower today.
So, if investors aren’t feeling nervous, is this D.C. drama really a huge deal?
Well, let’s be clear about the true impact.
This is definitely bad news for U.S. crypto infrastructure buildout, U.S. jobs, and the role of the United States as a sector leader.
Here’s the Blockchain Association on these concerns:
As written, the infrastructure bill contains harmful IRS reporting requirements that many in the crypto ecosystem lack the capabilities to comply with.
As a result, many crypto players will be forced to move overseas, leaving future jobs and economic growth on the table.
But from the perspective of most crypto investors, this doesn’t change much. Crypto’s ability to generate massive wealth remains.
Let’s go back to Luke for a key perspective:
The bulk of crypto mining is done outside of the country.
So, even if the big scary proposition were to pass, it would only have a small and temporary impact on the industry. Any mining capacity negatively impacted in the U.S. would move abroad, and the industry would be up-and-running at 100% capacity in no time.
That’s why the crypto market largely brushed aside these regulatory headwinds and continued to power higher this week.
I’ll note that even if the vote passes today (with the language we don’t want), there will still be plenty of opportunities to alter the crypto provisions in the infrastructure bill before it’s signed into law.
We’ll keep you up to speed.
Moving beyond the political drama, there’s a separate reason why crypto prices could be about to jump.
***An immediate catalyst that could send bitcoin’s price much higher
Below, we look at bitcoin’s chart over the last year.
I’ve added two simple moving averages (SMAs) – specifically, the 50-day SMA (in blue) and the 200-day SMA (in red).
As the name suggests, an SMA is a line showing the average reading of some specific number of prior days’ worth of market prices. As just noted, we’re highlighting 50 and 200 days.
These are two important trend lines.
Each represents a psychological line in the sand that helps investors size up short- and medium-term trends in price action.
For example, if a price falls below its 50-day SMA, traders usually interpret this as a shorter-term bearish trend change. To avoid potential losses, some traders will sell, which can intensify the move south, leading to even bigger price declines.
The opposite is also true: A push north through a 200-day SMA is often seen as a bullish medium-term indicator. This can attract more buyers, which leads to bigger price gains.
So, what can we learn from bitcoin’s simple moving averages today?
Last month, bitcoin’s price broke through its 50-day SMA, easily holding it. This was a very bullish indicator of shorter-term momentum.
Even better, bitcoin’s price has now climbed all the way back to its 200-day SMA.
If bitcoin can hold this level and turn it into new price support, it should pave the way for a push higher, back into the $50,000 range.
Regardless of what happens with bitcoin’s price in the near term, we remain incredibly bullish on the long-term potential here. This is a revolutionary asset class with disruptive power.
Here’s Luke to take us out:
We believe the fact that the market is looking at the big picture here and continuing to push crypto prices higher in the face of near-term optical risks is a healthy sign of sentiment in the market.
It basically emphasizes that the folks buying cryptos right now are in it for the long haul, willing to look past near-term risks, and very bullish…
We’re bullish. Not just for the long haul. But over the near term as well. And we’re very optimistic about the outlook for our newest picks in the portfolio.
Have a good evening,
Jeff Remsburg
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