Cryptocurrency has made its way to the U.S. Congress and investors call it a further validation.
- The infrastructure bill passed by the Senate is worth $1 trillion.
- Seeks to impose tax-reporting requirements for cryptocurrency brokers.
- Cryptocurrency profits are liable for capital gains taxes and new bill can generate $28 billion over 10 years.
- Crypto taxes could finance construction of roads, bridges, water systems, internet broadband access, etc.
Apparently, it could be difficult to understand a relationship between Biden’s Infrastructure Bill being debated in the U.S. Congress and the digital currency Bitcoin. However, repeated mention of cryptocurrencies, especially that of Bitcoin, in the U.S. Congress would lead one to conclude that the two are interrelated.
But exactly how the two dots connect is something that is a first for the crypto space and potentially has multiple consequences. This is because one of the ways that the Washington lawmakers plan to finance the $1 trillion infrastructure bill approved by the Senate earlier this week, is by taxing the cryptocurrency. They call it the means for brokers to report their customers’ sales to the IRS.
According to analysts, this move could also have an unintentional result- tighter regulation of the cryptocurrency market, which is an issue that has bedeviled regulators all over the world.
How Bitcoin is Linked to the Infrastructure Bill
According to estimates of the U.S. congressional accountants, the tax-reporting requirements for cryptocurrency brokers could lead to the government coffers getting a windfall of about $28 billion in revenue over 10 years.
According to estimates, the cost of replacing all the bridges in the country that are classified as structurally deficient is about $25.6 billion. Therefore, that tax amount generated from the new arrangement could be used for it.
According to analysts, with better implementation of the new arrangement, it could be possible to increase the taxes on decentralized currency to finance the construction of roads, bridges, water systems, internet broadband access, and expansion of the electrical grid.
This plan was described as “a generational investment” by President Joe Biden while comparing it to the construction of transcontinental railroad in the 1800s or the Interstate highway system in the ’50s.
That also reflects the astronomical transformation of cryptocurrencies into an alluring revenue source for governments amid greater calls for more scrutiny and regulation.
The Growth of the Crypto Market
According to estimates, the current value of the global crypto market has touched about $1.8 trillion. Cryptocurrencies are not linked to any bank or government and allow users to be anonymous while they send or receive cryptocurrencies. This has made this digital asset alluring for libertarians and the off-the-grid kinds as well as the risk-taking millennials. At the same time, cryptocurrencies have also reportedly become a favorite transaction currency for international criminals, money launderers, drug dealers, terrorists, and ransomware hackers.
Bitcoin, the largest cryptocurrency in terms of value, is currently worth around $45,000 each which is significantly lower than the record value of about $64,800 in April this year. In recent weeks, this cryptocurrency has rallied to pare back some of the losses, prompting some enthusiasts to predict its value crossing $100,000 in the near future.
However, Bitcoin is also notoriously volatile as even a tweet from Elon Musk, can cause a rise or fall in its value. Bitcoin is also slowly being accepted by the mainstream financial market with some companies accepting it as a mode of payment and large institutional investors showing interest in the digital asset.
Other well-known cryptocurrencies include Ethereum, Dogecoin, Ripple, and Litecoin.
Owners of bitcoin and other digital currencies can buy and sell them on exchanges with U.S. dollars and other national currencies.
How are Cryptocurrencies Linked to the Infrastructure Bill?
Before bringing cryptocurrency in the picture, a handful of suggestions were recieved for funding the Bill.
An earlier plan of the government to possibly rake in an estimated $100 billion over 10 years by strengthening IRS crackdown on tax evasion by individuals and businesses was rejected by Republicans.
As an alternative to increase avenues for funding the Bill without increasing the tax burden on people, the Biden administration formulated plans for stricter tax-reporting requirements for cryptocurrency brokers. While the estimated $28 billion in tax from this arrangement was a quarter of the IRS crackdown proposal, it was still among the largest of the proposed revenue generators mentioned in the infrastructure bill.
Intense lobbying from the cryptocurrency players was the biggest inhibitor to the proposal.
According to critics of the new arrangement of tax-reporting obligations, brokers are defined too broadly with the potential for unfairly curbing down on innovation for software development and crypto “miners”.
An amendment was sought to be made in the new reporting norms by clarifying who would be liable for taxes. The amendment sought to confirm that the new regulation will not apply to individuals developing blockchain technology and wallets. This helped to remove some of the bill’s ambiguity on the issue.
Another issue raised by the cryptocurrency industry is miners being unable to complete a 1099 tax form as they do not have customers. This makes them unable to access the information necessary for the form which cryptocurrency brokers will need to submit under the new regulations.
The new taxation regimen also mandates that brokers need to submit reports of any transactions over $10,000 to the Internal Revenue Service (IRS), which was already mandatory prior to the proposed bill.
Some cryptocurrency brokers already report transactions to the IRS, even though they are not currently required to do so by law. Brokers place buy and sell orders for users on the cryptocurrency exchanges and it is the duty of the exchanges to collect personally identifying information from users and report their annual activity to the IRS. Cryptocurrency is also defined similarly to an asset such as gold which therefore attracts capital gains taxes when a profit is made from selling it.
With the infrastructure bill now passed by the senate – and therefore now called the Infrastructure Investment and Jobs Act, it remains to be seen how this Act is able to bring in greater regulation of the cryptocurrency market apart from generating tax revenues for the government in the long run.