Offchain: Goodbye to the Wild West

Offchain: Goodbye to the Wild West

America has released its first comprehensive cryptocurrency legislation. Is this the beginning of the end for crypto’s Ludicrous Era?

For most of Bitcoin’s history, the OG crypto followed a familiar pattern: China made it, America bought it. As a result, moves by either player always had an outsize impact on the market.

More often than not this meant China, whose opaque but semi-regular attempts to oust the Bitcoin mining industry were responsible for about 50% of everything that happened in the crypto markets between 2013 and 2021. And then last year the mad bastards went ahead and actually banned it*, sending all those miners scrambling for a new home.

That home was America and now we’re in the strange situation where the majority of production, distribution and consumption of Bitcoin and every other supposedly distributed, globalised cryptocurrency is in the good ol’ US of A.

And this week they released their first comprehensive attempt to properly regulate it.

What’s in a bill?

The bill, known as the Responsible Financial Innovation Act, comes to us from Senators Cynthia Lummis and Kirsten Gillibrand, a Republican and Democrat respectively, proving that cryptocurrency is the only thing that can bring a divided America together?

There’s a lot to digest in the bill and people are still arguing about whether it’s a net good or minus for crypto (much of which hinges on uncertainty about what certain provisions actually mean).

But the intention is clear. As Senator Gillibrand said, crypto “provides opportunities to spur innovation and economic growth, to democratise financial markets and to transform access to capital for underserved communities.” This bill is meant to codify crypto’s place in American law for good – in both senses of the word.

Here’s a non-exhaustive list of key points:

  • Transactions under US$200 to be capital gains exempt. This is some A+ common sense.
  • Mining and staking income will not be taxable until the asset is sold. Also very sensible.
  • Stablecoins will be required to have at least 100% of their issued capital in cash reserves. After the LUNA-UST clusterfarge is anyone surprised?
  • More clearly defined rules as to whether a token is a commodity or a security – with a preference for the former – and how to make the transition from one to the other.
  • Increased reporting, compliance and customer protection requirements for tokens. Basically, anyone in the US releasing a DeFi protocol named WakaWakaBigBuxx with 1000% APYs will also have to release a Terms of Service document explaining exactly how WakaWakaBigBuxx expects to provide such returns – and what sort of protections you can expect when everything goes to hell.

The end of the beginning

To be clear, nothing in this bill will become law, at least not in the way it’s currently phrased. This is merely an opening salvo, something to bring into battle the opposing forces of Gary Gensler’s SEC and the crypto industry’s newly powerful lobbying arm.

There is also the question of timing. With mid-term elections looming and the seeming inevitability of Republicans taking control of both chambers, one wouldn’t expect to see much progress on the bill until well into 2023 – if it’s even a priority for the incoming Congress.

Still, it is a beginning, the necessary counterweight to the maxim that “crypto is here to stay”. Being part of polite society brings with it certain rules and expectations. What those rules may actually be remains up for debate. But it seems clear that the unfettered carnage, chaos and creativity that marked cryptocurrency’s first decade will have to change. For better or worse, America, crypto’s new unipolar force, will be the one setting the terms.

Happy trading,

* Fun fact: after falling to zero, China is back in second place in the Bitcoin mining stakes, which should be a salutary lesson for policy makers around the globe.

Luke from CoinJar

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