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The growing cryptocurrency lobby has spent $2.4 million this year, funneling millions of dollars to D.C. against the bipartisan Senate infrastructure bill that passed Tuesday.
Prior to the bill’s passage, senators blocked proposed changes to a provision aimed at imposing reporting requirements on the cryptocurrency industry. The cryptocurrency industry is on pace to nearly double the $2.8 million it spent on lobbying in 2020.
The industry failed in their lobbying quest to get rid of the new reporting regulations in the final version of the bill. The bill establishes tax reporting regulations on the $2 trillion cryptocurrency industry to generate an estimated $28 billion in revenue to fund projects listed in the infrastructure bill, which includes $110 billion for roads and bridges, and $65 billion for broadband. The provision ensures cryptocurrency agencies and digital currency “brokers” report their digital asset transactions to the Internal Revenue Service. Currently, the industry has no type of tax compliance regulation.
Cryptocurrency agencies believe the provision threatens the development of decentralized financial systems and would establish reporting obligations for software developers and cryptocurrency “miners” — individuals and agencies who use computing processes to churn out digital coins — that they could not realistically follow.
Cryptocurrency’s absence of a centralized banking system, along with its blockchain transactions, make tracing information to an individual nearly impossible.
Ripple Labs, a cryptocurrency agency, spent the most on lobbying on the issue during the first six months of 2021 at $550,000. Ripple also hired former U.S. Treasurer Rosa Rios to join their board of directors in early May. The second highest spender was Stellar Development at $330,000.
Rios is not the only former government official hired by a top cryptocurrency firm this year. Former Sen. Max Baucus (D-Mont.) now advises cryptocurrency exchange company Binance, while Faryar Shirzad, a former staff member of the White House National Security Council and former Goldman Sachs co-head of government affairs, works for Coinbase, a cryptocurrency firm that spent $160,000 on lobbying so far this year.
Aside from hiring former government officials, cryptocurrency agencies have seen a massive increase in lobbyist hires over the past five years, going from one lobbyist in 2016 to 60 this year.
Kristin Smith, executive director of the Blockchain Association, told POLITICO that although the provision “has definitely been a wake-up call to crypto,” the speedy action seen by lobbyists and agencies to fight against the provision has shown “ crypto is more of a force than anybody ever anticipated.”
After blowback from the cryptocurrency industry, lawmakers went back to the drawing board over the weekend to propose new reporting rules. Sens. Patrick Toomey (R-Pa.), Ron Wyden (D-Ore.), and Cynthia Lummis (R-Wyo.) proposed a plan that would not oblige cryptocurrency “miners” and software developers to follow the reporting rules.
Toomey has up to $30,000 in Bitcoin and Ethereum cryptocurrency investments.
Sens. Rob Portman (R-Ohio), Kyrsten Sinema (D-Ariz.) and Mark Warner (D-Va.) introduced a second proposal Saturday to exclude miners who participate in “proof of work” systems like Bitcoin and Ethereum 1.0 from the proposed tax provision’s financial reporting obligations. But it would impose the reporting rules on miners who use “proof of stake” systems used by altcoins. Altcoins are less energy-intensive and boost mining power according to the percentage of coins held by the miner.
The Biden administration praised the amendment proposed by Portman, Sinema and Warner, saying it “strikes the right balance and makes an important step forward in promoting tax compliance.”
Despite the presidential endorsement, amendments to the rules were shot down Monday because the bill was in its final stages of consideration and a change would have required the approval of every single senator. Sen. Richard Shelby (R-Ala.) objected to amending the provision.
Lummis said in an interview Monday that Congress will have to revisit the issue.
“All that means is we’re gonna have to fight this another day because it’s important that the Congress define these terms and create a level playing field,” Lummis said. “Going forward this fall we’re gonna have to be much more proactive about defining terms in this space so people can still innovate.”
The bill is currently on its way to the House, where the provision could be amended. However, House Speaker Nancy Pelosi (D-Calif.) has said she will not pass the bill until a larger $3.5 trillion budget reconciliation bill is passed by the Senate.