Is Congress warming up to cryptocurrencies? Two bills introduced over the last six months could give that impression. Last Friday, U.S. Senator Kyrsten Sinema, Democrat of Arizona, and U.S. Senator Pat Toomey, Republican of Pennsylvania, introduced the Virtual Currency Tax Fairness Act, a bill that they hope will simplify the use of cryptocurrency for everyday use. The bill exempts from taxation de minimis (small) transactions of less than $50. Gains in cryptocurrency valuation that are less than $50 also escape taxation.
A similar version of the bill, also referred to as the Virtual Currency Tax Fairness Act, exempts cryptocurrency from taxation where gains are $200 or less. That bill was introduced by Suzan DelBene, Democrat of Washington, and David Schweikert, Republican of Arizona.
Should both bills pass their respective chambers, the bills would likely be modified in conference committee.
I wonder, however, how much this action will increase personal usage. Exemption from taxation of digital activity goes back to the nascent days of the internet where Congress did not want to hamper growth and innovation in the broadband space. In the mid-1990s the issue was deploying a technology that allowed the convergence of video, text, and voice technologies. Today, whether on a mobile phone or desk top, the issue is now about money exchanging hands and crossing borders in digital form.
If Congress truly wants to move from rhetoric about innovation and unleash the potential of cryptocurrency, it should make illegal the convertibility of crypto into fiat currency. Crypto needs to differentiate itself from fiat currency by demonstrating that it has intrinsic value. As I shared in another post, a digital asset should contain data that appreciates in value continuously. Crypto should have its own separate economy, ideally one based on value recorded in the token itself. Until that happens, crypto is just as valueless as USD; its fate and value in lock step with a valueless currency.
I don’t see Congress going this far. If one out of every five Americans is using crypto to some degree, then potentially liberating 20% of taxpayers would not bode well for the American political economy. Congress, rationally so, would rather provide a doggie bone of reduced taxation versus monetary separation.
The warming up to cryptocurrency use is either temporary or the temperature will remain like this for a while. But it is not yet a crypto winter.
31 July 2022
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