Staying on top of recent bills and proposed legislation is tricky in time-consuming. Here's a quick update on what new legislation could affect the crypto space in the United States.
It seems like every few weeks or so, a brand new crypto project pops out of existence to offer a new coin or token in an already saturated and volatile market. Similarly, legislation on the matter has also continued to gain steam as the number of bills seeking to regulate crypto has increased. Regulators are struggling to define various types of digital assets as well as how they should be regulated and taxed.
In this article, we will go over the most recent pieces of legislation and how they could affect the crypto landscape, for the better or for the worse.
New reporting requirements for crypto “brokers” under the Infrastructure Investment Jobs Act
This one is on top of the list for the simple reason that it has already become law. The Infrastructure Investment and Jobs Act (IIJA) was signed into law on November 15, 2021. It contained a controversial provision that required “brokers” of digital assets to report certain information to the IRS.
Despite chiefly being a law on infrastructure spending, the IIJA includes a section called “Information reporting for brokers and digital assets” which imposes a reporting requirement on “brokers” which is defined as “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”
The main objective of the reporting provision is to help pay for the IIJA’s infrastructure projects through additional tax revenue that might be collected from these transactions. However, the law also has the unintended consequence of regulating crypto. The language of the law has been criticized for being unclear and broad, as there is no clear definition as to who may be considered as “brokers'' under it.
More significantly, it raised concerns over increased financial surveillance which is anathema to the principles of decentralization and anonymity that govern almost all crypto projects out there.
Bills attempting to clarify the legal status of digital assets
A lot of the legal and regulatory risks in crypto come from the uncertainty as to their proper characterization. Here are the bills that are seeking to address just that.
The proposed Securities Clarity Act (H.R. 4451), seeks to amend securities laws “to exclude investment contract assets from the definition of a security.” This bill treats an “investment contract asset,” like digital tokens, as separate and distinct from the investment contract in which it is offered. In the same vein, the Token Taxonomy Act (H.R. 1628) also does not consider digital tokens as “securities” for purposes of regulation.
Meanwhile, the Eliminate Barriers To Innovation Act of 2021 (H.R. 1602) has gained the most progress on the legislative floor after it passed the U.S. House of Representatives on April 20, 2021. This proposed law would form a joint working group between the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) with the goal of providing clarity and delineating between a security and a commodity in relation to digital assets.
These clarifications are necessary to make government policy on crypto become more predictable. It would also help minimize risks from a legal compliance perspective.
Bills pushing for regulation and deregulation
Considering the lack of policy and government guidelines in the crypto space, the majority of recent bills are looking towards more regulation.
The Digital Asset Market Structure and Investor Protection Act (H.R. 4741) aims to provide statutory definitions for “digital assets” and “digital asset securities” and to place the former within the regulatory authority of the CFTC and the latter with the SEC.
The bill also seeks to promote transparency by requiring all transactions related to digital asset transactions in the distributed public ledger to be reported to a centralized CFTC registered “Digital Asset Trade Repository.”
H.R. 4741 would include “digital assets” and “digital asset securities” within the statutory definition of “monetary instruments” as understood under the Bank Secrecy Act (BSA). This in effect, may subject digital assets and digital asset securities to the reporting and recordkeeping requirements of the BSA.
Although most of the proposed bills desire more crypto regulation, there are also bills that want to “deregulate” it by creating exemptions to particular entities and transactions from certain legal requirements.
For example, the Blockchain Regulatory Certainty Act (H.R. 528) creates a safe harbor for “non-controlling blockchain developers and providers of blockchain services” (e.g., “miners”) and exempts them from licensing and registering as a money transmitter or financial institution.
Bills dealing with tax implications of crypto transactions
Aside from the IIJA’s imposition of reporting requirements for crypto “brokers” for tax purposes, there is also other proposed legislation that deals with the tax treatment and implications of crypto or token transactions.
One of them is the aforementioned Token Taxonomy Act (H.R. 1628) which has noteworthy tax-related provisions. There is a provision that excludes gains from virtual currency transactions from gross income up to $600. Another provision places virtual currency exchanges as “non-taxable exchanges'' in the same manner as real property transactions under Section 1031 of the Internal Revenue Code. Lastly, this proposed law also seeks to “adjust taxation of virtual currencies held in individual retirement accounts” by not considering investments in blockchain coins and tokens as “distributions.”
Keeping up with crypto legislation and regulations
Indeed, keeping up with recent legislation and government issuances on crypto regulation can be difficult. There are lots of pending bills on the matter that could get fast-tracked into law with little public discourse.
Moreover, new regulations and interpretations can suddenly emerge which could retroactively put those who are non-compliant at risk. This risk is not just limited to crypto companies but to all companies that deal with crypto in one way or another, as well as individuals working and investing in the crypto space.
For companies like us who deal with blockchain coins and tokens, staying on top of these legislative developments is indispensable. Our goal is to assist crypto companies in turbo-charging their growth by incentivizing loyalty amongst its workers and contributors through safe, valid, and effective token compensation in the form of restricted token units (RTUs).
Thus, with Upstock’s Uptoken, we ensure that crypto companies are able to attract and retain the top talent they need without having to worry as much about new crypto legislation. If you want to learn more about how we ensure our RTU plans stay ahead of the game, you can learn more about us here.