What a difference a couple of weeks makes in the cryptocurrency market…
Two weeks ago, bitcoin was trading between $28,000 and $30,000, and it looked like the sky was falling. Last week, it traded as high as $46,500 − up 50% off the lows.
But this shouldn’t come as a surprise.
There’s no other asset in the world that regularly moves up or down 50% on any given day… And then reverses course the next.
Throughout this volatility, though, adoption has continued to skyrocket. The real question is whether you’ll have the fortitude to avoid buying high and selling low.
That’s why today I want to discuss the latest kerfuffle going on in the crypto space: The wording of a passage relating to crypto assets in the recently passed Senate infrastructure bill.
Over the past week, I’ve received more worried emails from my subscribers about this bill than any other topic.
Here’s what you need to know: In the short term, this bill may cause additional volatility in bitcoin. But I’m here to tell you it’s not a long-term threat to the adoption of bitcoin.
Before I get to why, let me tell you what this bill proposes.
Nothing to Worry About… So Far
Last week, the Senate passed a $1 trillion infrastructure spending bill. Remarkably, the biggest story was an amendment to the bill regarding cryptocurrency tax reporting.
The amendment requires crypto “brokers” to report crypto gains to the IRS. It’s similar to the 1099 form stockbrokers must file on behalf of their clients.
Currently, crypto exchanges aren’t required to report gains or losses on their customers’ sale of digital assets. But the bill would change that.
It would require “any broker (a person or company who regularly provides a service that executes transfers of digital assets on behalf of another person) to report those transactions to the IRS, just as securities brokers must do for stock and bond trading.”
The problem with the bill is its definition of “broker.” As written, it would include crypto miners, developers, and stakers.
This is a huge overreach by the Senate. And the crypto community is justifiably outraged.
How in the world does the Senate expect miners and developers to track the gains of crypto users? They don’t have customers. So they can’t comply with the law.
It’s like asking the developers who write the trading software for Fidelity or Ameritrade to track the gains of everyone who uses their software.
It’s insane. And it could prove to be incredibly onerous for the broader crypto ecosystem.
But I think it’s a bit too early to start losing sleep over this.
First, the Senate’s version of the bill must go through the House, which is expected to debate it in the fall. And that will be a long, drawn-out process.
The four co-chairs of the Congressional Blockchain Caucus sent a note last week expressing “concern” with the new tax reporting mandates.
And crypto lobbyists are gearing up for a fight as well. The Electronic Frontier Foundation pointed to “a clear and substantial harm” in the “surveillance” these tax reporting requirements could impose on crypto users.
So it’s unlikely the Senate’s version will remain intact. We’ll have to see what the House does with it.
Here’s the thing to understand… the government isn’t looking to kill crypto, they are looking to tax it. And you can’t tax a corpse (death taxes aside, of course).
My point is I expect the long-term greed of politicians to guide their actions in defining the term “broker” in a way that allows them to shove their snouts in the crypto feeding trough without destroying it.
So, for now, I wouldn’t worry too much about it. We may see a short-term pullback here and there as people overreact. But so what? People have been overreacting in financial markets for centuries.
And even if the onerous language remains and the bill becomes law… it still won’t kill crypto. In fact, we could see it emerge even stronger.
Crypto Will Survive the Challenge
We’ve seen crypto face more significant challenges and not only survive… but thrive.
China has repeatedly tried to crack down on crypto trading. And in May, it announced a near-total ban on crypto mining. We saw bitcoin drop as much as 53% on the news.
But all China did was force its miners to move to friendlier jurisdictions.
These guys have now relocated and restarted their operations… And bitcoin has rallied as much as 59% of its recent lows.
The Senate amendment is nowhere near as aggressive as China’s recent crackdown. But even if it passes, the crypto community will adjust as it always has.
That’s the beauty of a decentralized network built on software… not personalities. My advice is to enjoy the last days of summer and don’t worry about bitcoin.
The network will defend itself just as it has for more than 10 years now.
Let the Game Come to You!
Editor, Palm Beach Daily
P.S. The proposed infrastructure bill is just another small bump in the road for crypto… and it won’t stop the $30 trillion blockchain revolution that’s already begun…
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Any one of these could have made you a millionaire many times over, starting with very little… And it’s why I recently shared the details of my No. 1 investment in an exclusive interview.