- William Quigley says Congress doesn’t have the appropriate framework to regulate crypto.
- He says the crypto sector needs to work with policy makers to educate them about the technology.
- Caitlin Long says despite the tension, the crypto community is flexing its muscles in Washington.
- See more stories on Insider’s business page.
This week, the crypto industry took center stage in Washington, DC amid an effort to tag it onto the $1 trillion infrastructure bill.
The bill included an estimate of about $28 billion in funding that would come from incremental tax collections on cryptocurrency transactions. While congressional accountants drew up this estimate for a 10-year period, it was likely based on a number of generalized assumptions, said William Quigley, the co-founder of the stablecoin Tether and Wax, an NFT platform.
“So we’re talking about very big numbers and really wild, big assumptions to come up with it. But that $30 billion became important because the more money that was being added to the infrastructure bill, the more tax revenue needed to offset it,” Quigley said.
The revenue need, combined with the assumption that US citizens were underreporting their transaction gains, would add tax-reporting requirements for brokers. A broker was broadly defined as anyone responsible for and regularly providing the service of transferring digital assets for others.
That broader definition became the main dispute. It meant that anyone, including miners and software developers, could be subject to reporting customers’ information even when they have no way of collecting that data. One issue here is that blockchain technology is not centralized nor operated by any one entity that can respond to a request from the government.
As of Tuesday, the US Senate rejected the crypto-tax amendment after lawmakers battled over which crypto brokers should be subject to new tax-reporting rules.
“This problem is really a result of Congress having no framework with which to propose any kind of new regulations for crypto because they have simply ignored it,” Quigley said. “They’ve left it to the various federal agencies, the SEC, the Treasury, the IRS, and CFTC to go make up rules. And those guys of course have often made up contradictory rules.”
There’s a misunderstanding broadly felt among Congress members that cryptocurrencies are a vehicle that promotes tax evasion and money laundering even though there is no evidence that suggests it happens more often than with fiat, he added.
An amendment that was included in the bill at the last minute more narrowly defined “broker” but failed to pass in the Senate. Even under this definition, there are many decentralized exchanges that don’t have KYC (Know Your Customer), which is a verification process that customers go through in order to verify their identity when they sign up.
“So whether or not a decentralized exchange could even conduct this reporting requirement remains to be seen. The only way I could see it happening is if it wasn’t truly decentralized,” Quigley said.
One outcome would be that some of these exchanges could simply exclude US citizens from their platform, which Quigley says would be really bad because they wouldn’t have access to a broader base of companies that could be better than US-based companies.
“This is not Silicon Valley, circa 1990s, where the vast majority of breakthrough internet companies and most of the world’s venture capital was concentrated in one state,” Quigley said.
He continued, “There are many, many different countries that have active thriving cryptocurrency developer communities today, and also have substantial amounts of venture capital accessible to them. And therefore, if we overly constrained this industry in the US, it will naturally flow to other parts of the world.”
The future of Washington and the crypto industry
Because Blockchain is a valuable technology for many industries, Quigley advises policymakers to get better organized on the matter. He says they should create a task force, get a framework, figure out which federal agency has primary jurisdiction for it, and finally, give the cryptocurrency community clear guidance.
But if the US really wants to have a competitive edge globally, Quigley says the central bank had better develop a digital currency.
“As someone who co-founded Tether, the first stablecoin that now trades trillions of dollars a year, I know the power and the benefit to consumers of a stablecoin, and other countries are going to do that,” Quigley said.
This would make the US dollar more accessible to people outside the United States, he said.
“I think it would be a great way to push the definition of the reserve currency down to individuals who probably would love to have a stable currency, like the dollar,” Quigley said.
As for his advice to the crypto community, he tells them to take a cue from the automotive industry.
“You couldn’t imagine a group of senators or Congresspeople willy-nilly drafting legislation around the automobile industry without caucusing with the automotive industry and the parts suppliers and the service contractors to understand what this means for them,” Quigley said.
Caitlin Long, a 22-year Wall Street veteran, says regardless of the tension, this was a huge step forward for the crypto community because senators are now taking public positions on the matter and even working together to draft policy. She’s the founder and CEO at Avanti Financial Group, a custodian bank for digital assets.
“Senator Cruz, actually Senator Wyden as well, they had never taken public positions on digital assets before,” Long said. “And now they were taking very public positions in both of their cases. They’re on opposite sides of the political spectrum and they were working together to help fix this language in the bill.”
“My friends in Washington tell me that the crypto industries’ sudden rise in showing its political power, flexing its political muscle, was the talk of the town in Washington, DC,” Long said.