Wall Street and politicians are trying to kill crypto businesses | Interview with Zachary Kelman

Everyone's eyes are locked on the $1.2 trillion infrastructure bill that was approved by the US Senate on August 10. The bill is now in the House of Representatives where it will be debated and voted on in the coming weeks. Much of the public's attention has been unexpectedly focused on just a few sections of the nearly 3,000 page document. These sections are about cryptocurrencies and digital assets. What on earth is crypto doing in a bill designed for improving US Roads, bridges, pipes, ports and Internet connections? Why is everyone in the crypto community in a frenzy over this? And what does this mean for the future of crypto?

I think it's both nefarious conspiracy to try to harm the crypto industry, and I think it's also poorly drafted and the people doing it don't really know quite what they're doing.

This is Zach Kelman, partner at a law firm specializing in policy and regulation. He drafted a bill on crypto to Congress in 2014 and has been deeply embedded in crypto policy ever since. I interviewed him to get a deeper perspective on the details, effects and implications of the US Congress infrastructure bill. So let's address the first question. How did crypto find its way into this trillion dollar infrastructure bill? Well, the thing is, $1.2 trillion is a lot of money. And Congress needs to find a way to raise that money without lumping it on top of the $28 trillion of debt and counting that the US has already accrued.

So if you look at the way that this bill has been structured, it's structured around pay fors. So effectively the agreement from the beginning was no heavy deficit spending here. If you want to pay for something, you have to figure out how to pay for it. Now, you know, we all know how the public feels about taxing and spending. Everybody wants a lot of spending and they don't want to pay any taxes. So what happens in that situation is that senators and congressmen want to find ways to meet that standard without actually having to raise taxes, because that's a political loser for everybody. So this rule, along with many other rules, is about enforcement. It's about without having to say, hey, we're going to raise the cap gains rate, we're going to raise corporate tax rates, which know sends a bad market signal. They're sort of saying, hey, this money's out there. And crypto, you know, crypto land all the people with their gains and we're going to. And it's a huge amount, astronomical amount, which, you know, I don't think is the case, I think it's exaggerated and that we're going to find new ways of capturing that tax revenue. So it's a bit of a bluff or I don't know how you'd put it exactly, but I think they know that the amount of revenue this will net them and is not quite what they're saying it is. It's actually more the party that they're really speaking to here is really more international corporate, international sovereign debt buyers and people that buy dollars and U.S. treasury purchasers. It's a bit of like a shell game to show them, look, we are going to be able to pay for this. And so they've been finding creative ways to do it.

The bill aims to raise $28 billion for infrastructure funding to through expanded digital asset taxation and will impose broad third party reporting requirements on any crypto firm deemed to be a broker. This is where the real drama starts. A broker is generally defined as an entity who buys and sells goods and assets for others. And in the case of this bill, this definition is used broadly. So broadly in fact, that it includes not just exchanges, but which fit the typical definition, but also miners, node validators and software developers. This blanket interpretation of the term broker could make it nearly impossible for crypto businesses in the US to comply.

It's a lot of work for crypto businesses to be able to file everything and show, you know, who are all the people on the other side of the transaction. And more importantly for node validators, miners and groups like that, it's impossible. They don't know who all the people that they're transacting with are who is on the other side of the transaction. So functionally speaking, they can't do it.

Before the Senate voted to pass the bill on August 10, two amendments were introduced in the hopes of narrowing the definition of the term broker. Both these proposals were rejected and the Senate voted to forego any debate on the subject.

The interesting thing is we didn't hear any debate as to why this was the case, why they felt the need to make this so broad. On some level, it's like a boxing match. One side just punching and punching and punching with good arguments, the other side's just saying nothing, right? They're just not, they're not responding.

Kelman offered a few different explanations why this could be the case. The first, simple ignorance.

When senators and congressmen bring in tech people, the first thing you see is that they don't understand any of this stuff. It's like a boomer issue, you know, they don't they don't grasp how the Internet works. They don't even necessarily grasp how Facebook works.

But Kelman believes there's more going on behind closed doors, that this could even be a targeted attack on crypto businesses.

They're not killing crypto, they're killing the crypto industry, killing all the businesses and organizations around it and forcing them to have to comply with things. The miners and other groups as well. To me, it's more like the way regulation and compliance always goes. We think that banks hate regulations. They love regulations because only the big banks can afford to comply with them. The whole plan, from my view overall is all these onerous rules make it harder for the little guy to be involved in crypto, to run crypto businesses and benefit big institutions that are already paying Deloitte a billion dollars a year to do their reporting and filings anyway. So I think, to me, the goal is to. To make it so that they get as much of the crypto custody in Wall street at these institutions as possible, as opposed to me holding the bitcoin myself and my own wallet. So I think that's. That's kind of where the disconnect is. They don't want to kill it. They want to own it and control it. And, you know, to me, that's. That's kind of where the 2 cents are. The politicians just want to be able to tax it.

Are big banks really in bed with the regulators and politicians? Is this a coordinated effort to undermine the crypto industry? It's easy to speculate, but it's difficult to tell. One thing we do know for certain is that the bill as it stands is not good for crypto businesses in.

The U.S. oh, it's very bad. I can say that unequivocally. It's not good, especially for the U.S. i mean, if you want to make the best case scenario, you could say, look, the US Maybe attracted a lot of. It was like a spider pulling everything into its web, and now it's ready to eat them and that it maybe decided to have lunch a little bit early and it's going to push it out of the web. But that's probably the best argument I could make. The certainty that this is the US has shown its face, so to speak. The US Regulatory apparatus has said, here's what we want to do. So now there's some certainty there, and projects can say, okay, bye, bye. You know, we don't want to deal with this. So.

But as most of us know, the US Is not the only country in the world. Will this be bad for countries beyond American borders?

Yeah, it's bad because it means they lose the US market. But if you are, you know, and again, if you read the, the actual amendment, they mentioned the G7, how the G7 countries are the same obligation. So we'll see if they follow suit with something like this. From my understanding, people that work with OECD, G7 groups like that, they've all said the US is the one pushing this the hardest. So the way we saw legislation for crypto play out in Europe was that EU is a crypto bear that wants to make it very difficult to do business there. But the individual countries were not. They passed all kinds of legislation to attract a lot of crypto. I think Portugal and France had exempted their on chain transactions from taxes, things like that. So we might see other countries not follow suit. I've always thought Europe had the opportunity to attract more crypto than any other region does. I think we might actually see that. I hope, I hope we see that because EU countries need jobs. They have a lot of education and they can get, and they can attract people from all over the world to come there and work on these. So some politicians in some of these countries may decide, look, let's, let's, let's do this. We've seen a little bit of that in the past with some of those laws I'd mentioned, but we don't know how they're going to react to this. And also the other issue is where do they land? Russia and China have their own issues with crypto. And I wrote some articles for Cointelegraph a couple years ago and basically saying, look, for Russia, China and countries like that, it's like a moonshot. You know, if they can kill the dollar and hurt themselves in the process, like a headbutt, it's worth it. They get even if to adopt crypto and be pro crypto. If they can't, it's going to hurt them more than it's going to hurt the U.S. however, a lot of the.

Speculation still remains unclear for one key reason. The infrastructure bill won't go into effect until 2023. That's two years from now. A lot can happen in two years, including further changes in amendments. The bill that went through the Senate could be quite different from what's eventually enacted. There's hope yet that the sections covering digital assets will be revised, but that doesn't mean there's no cause for concern. The US government's stance has been revealed. Is it one of ignorance, deviousness, greed or some combination of the three. Only time will tell. Here at Cointelegraph, we'll be following these events very closely. So hit that like and subscribe button and stay tuned for our next Cointelegraph interview.