Wednesday, July 24, 2024
Evina 110o x 220

How Proposed Cryptocurrency Regulations in the USA’s Infrastructure Bill May Impact Markets

Over the past decade, crypto has slowly increased in popularity. Bitcoin, its first major currency, was born amidst the betrayal of the Global Financial Crisis. From 2009 onward, pioneers adopted BTC (and subsequent cryptocurrencies), hoping they would usher in an era of bank-free transactions.

But, for all their advances, cryptocurrencies have suffered plenty of setbacks. From the massive Mt. Gox heist to its numerous boom/bust cycles, they could have fizzled away as “just another fad.”

But, they haven’t. In 2021, the value of BTC has peaked at around 64,000 USD. And, whilst it plunged by half shortly afterward, it has since recovered.

However, this latest rally may be in jeopardy. In recent weeks, the United States government has suddenly moved to regulate crypto transactions. And, with the particulars still up in the air, the value of cryptocurrencies and related equities has been thrown into question.

What’s Going On?

As in most nations, the COVID-19 pandemic has had a significant negative impact on the US economy. At the same time, American infrastructure had reached a critical state. As recently as 2017, the American Society of Civil Engineers had given it a grade of D+.

As of today, their assessment is better, but only slightly so. In this organisation’s most recent report, American infrastructure now has a grade of C-. Despite this, the USA still has a major backlog of crumbling public assets. At the same time, an employment crisis sparked by COVID persists. To address both crises, this government has put together two infrastructure bills.

However, only one addresses cryptocurrency. In early August, the United States Senate passed what became known as the Bipartisan Infrastructure Bill. This legislation endeavours to fix America’s power grid, road network, and climate change defences by offering $1.2 trillion in relief.

But, like many other acts of Congress, the Bipartisan Infrastructure Bill also contains its fair share of questionable amendments. Of them, the crypto provision stands out. In brief, to pay for infrastructure repairs mandated in the bill, this amendment intends to close loopholes and prosecute crypto-related tax evasion.

According to Janet Yellen, US Secretary of the Treasury, this amendment “will provide important clarity on important provisions” that will aid the government in this effort.

Why These Regulations are a Big Deal

However well-intentioned these measures are, some say they will do more harm than good. At issue is the amendment’s definition of a crypto broker. As currently written, it is exceptionally broad in scope. In addition to actual brokers, anyone from crypto miners to software developers could be affected.

In theory, regulators could require these players to report all transactions related to their activities, even if they aren’t brokers. So, even though a crypto miner doesn’t sell crypto shares or cryptocurrencies, they would still have to file documents with the IRS.

According to industry insiders, this requirement is problematic. At heart is the nature of the crypto economy – how do you track customer data when everything is decentralised? Yet, these non-financial intermediaries would somehow have to track transactions that are untrackable by design.

How Will These Provisions Affect Cryptocurrencies and Crypto Stocks?

It would be reasonable to assume that regulation talk would exert downward pressure on crypto prices. However, in the weeks since this news broke, things have been rather stable. Apart from arresting the post-Musk crypto rally, a plunge has not materialised. Instead, the BTC/USD spot price has hung out around the 45,000 USD mark.

The same trend has played out with many publicly traded crypto companies. For example, LCLP stock, which experienced a super spike in July, had settled in the 0.02-0.03 range. Even after regulation talk began in early August, trading has remained within that band.

So, what’s different this time? First of all, there has already been a correction event this year. All it took was Elon Musk doing an about-face on BTC to shake out speculators and meme stock buyers. Because of this, a greater proportion of remaining investors are long on crypto.

Second, the outcome of the crypto provision is still up in the air. Over the past few weeks, alternative amendments to the crypto amendment have been put forth, seeking to define who a “crypto broker” is. If Congress reaches a resolution that excludes non-sellers of crypto securities, the impact on prices will likely be minimal.

And third, as bothersome as they may be, these discussions underline a crucial fact – that crypto is here to stay. Even through BTC’s first boom, some lawmakers had openly mused about outlawing cryptocurrencies. Now, talk has shifted to regulation. As much as the thought of paying taxes irks some in the crypto community, it beats an outright ban.

In short, any negative impact will likely be short-lived and quickly forgotten about.

Crypto is Likely a Permanent Fixture of the Global Financial System

In little over a decade, cryptocurrencies have demonstrated their worth. Their anonymity, the incorruptibility of their blockchain foundation, and its status as an inflation hedge have made these e-coins an indispensable asset.

Whilst their short-term volatility may still frighten the risk-averse, crypto’s overall popularity has solidified their place in the global financial system.

Subscribe to our newsletter

To be updated with all the latest news, offers and special announcements.

Evina 900x750