This piece originally appeared in FIN, James Ledbetter’s fintech newsletter.
If you find it strange that the infrastructure bill snaking its way through Capitol Hill might fundamentally change the way that cryptocurrency transactions take place in the United States, you’re not alone.
Late this week a flurry of news stories and activist campaigns flagged a relatively obscure provision in the infrastructure bill that mentions cryptocurrency. The actual text of the bill, as of the morning of August 1, is unavailable, but according to a summary obtained by CNN:
The bipartisan infrastructure framework applies information reporting requirements to digital assets (including cryptocurrency) to ensure they are properly reported to the IRS. The provision includes updating the definition of broker to reflect the realities of how digital assets are acquired and traded. The provision further makes clear that broker-to-broker reporting applies to all transfers of covered securities within the meaning of section 6045(g)(3), including digital assets. Additionally, digital assets are added to the current rules requiring businesses to report cash payments over $10,000.
Confusingly, various media outlets have treated this surprise provision as if it’s a new tax on cryptocurrency. It isn’t; people who buy and sell cryptocurrencies are already required to pay tax on any gains. What would be new is the definition of a broker, and reporting requirements which would almost certainly increase the amount of tax paid to the government. The document published by CNN indicates that Congress’s Joint Committee on Taxation estimates that this provision would bring in $28 billion over ten years.
Predictably, those whose oxen seem in line to be gored shout the loudest; here is a Republican Congressman saying the bill will kill fintech in the United States:
Similarly, the executive director of the Blockchain Association issued a feisty statement:
[T]he hastily drafted language around revenue raising provisions in the infrastructure package could have unintended consequences that strike at the heart of innovation in the cryptocurrency ecosystem, risk driving jobs overseas, and may jeopardize Americans’ Fourth Amendment protections.
A more sophisticated critique came in the form of a tweetstorm from attorney Jake Chervinsky, who argued that it would be “impossible” for all cryptocurrency players to comply with IRS reporting provisions, including gathering customer information via 1099 forms.
All this seems more than a little overheated. For one thing, the federal government has been moving in this direction for many months. In late 2020, the Treasury Department under Steven Mnuchin proposed a similar plan, in line with what the finance ministers of the G7 have all agreed to.
Another reason to be skeptical that the crypto sky is falling is that for years, many in the crypto industry itself have endorsed this approach. Back in 2017, Coinbase CEO Brian Armstrong—who’s not exactly shy about promoting the crypto industry—advocated a 1099 system:
I believe a good option would be to use the same third party reporting mechanism that brokerage firms like Fidelity and Charles Schwab use today: the 1099-B form. We’d ideally like to see that structure applied evenly to all companies in the industry, but even if we’re required to go first, we’re ready to implement 1099-B reporting.
Moreover, if these apocalyptic scenarios were genuinely imminent, you’d expect major cryptocurrencies to be falling in value, wouldn’t you? And yet: Bitcoin this week is up—a lot, actually (see next item):
So is Ethereum:
Maybe the market believes that this provision will drop out of the infrastructure bill before it becomes law, but at least for now, FIN is not buying the doomsday scenario. Where FIN does agree with the bill’s critics is the shameful lack of transparency. If it’s important to regulate cryptocurrency, let’s have hearings, let’s have a real debate in public, instead of covertly tacking language onto a popular bill.
Superapp Vanity: No, Not Everyone Can Do Everything
At the risk of repeating the theme of last week’s lead FIN item, the superapp news that zips into our inbox nearly every day sends a consistent, if entirely inadvertent message: The superapp ideal has seduced too many big companies into thinking that they are going to do it all on their own.
Last week, you will recall, FIN lauded the UK-based Revolut for its $33 billion valuation and its impressive market reach. At the same time, the company’s trumpeted launch of Revolut Stays, a nascent travel booking service, seems unlikely to dislodge, say, Booking.com in the UK or anywhere else anytime soon.
A slightly more plausible superapp fantasy emerged this week when Amazon published one of the more frenzied want ads of recent years:
The Payments Acceptance & Experience team is seeking an experienced product leader to develop Amazon’s Digital Currency and Blockchain strategy and product roadmap. You will leverage your domain expertise in Blockchain, Distributed Ledger, Central Bank Digital Currencies and Cryptocurrency to develop the case for the capabilities which should be developed, drive overall vision and product strategy, and gain leadership buy-in and investment for new capabilities. You will work closely with teams across Amazon including AWS to develop the roadmap including the customer experience, technical strategy and capabilities as well as the launch strategy.
This job posting at a minimum implied that Amazon intends to get deeply involved in the cryptocurrency space. The ad’s impact, some say, boosted the price of Bitcoin by about 6% in a single day. (It’s gone up further since, which may or may not affirm this causal theory.)
Then there’s PayPal. In the Q2 earnings call this week, CEO Dan Schulman proclaimed:
[T]he initial version of our new consumer wallet super app is code complete, and we are now beginning to slowly ramp….New features will include high-yield savings, early access to direct deposit funds, new and improved bill pay functionality, messaging capabilities outside of P2P to enable family and friend communications, as well as additional crypto capabilities and customized deals and offers.
Then there is the ultimate superapp play: the Facebook-led effort to create the Diem, still apparently happening this year. (FIN reached out to Diem about its US rollout, but did not receive a reply.)
Few would fault big, successful companies like Amazon, Paypal and Revolut for their expansions; after all, if any digital leader is going to create the West’s ultimate superapp, why not them? And how will you get there if you don’t try?
At the same time, here is a bold prediction: while many of these experiments are exciting, most, possibly all, of them will fail. Why? Part of it is the Big Company Focus Curse; acquiring Flickr was supposed to transform Yahoo into an image powerhouse, but it didn’t; Microsoft essentially killed Nokia by acquiring it; etc.
Of course, there are important exceptions: buying YouTube might turn out to be one of the smartest things Google ever did (at a pricetag that today looks laughably small). But acquisitions of popular products and services is very different from creating them from scratch in a crowded field. While conceivably some PayPal users will want to send messages through the app, it’s unlikely that WhatsApp is feeling threatened.
This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.