Opinion, Regulation

Now They Fight Us

Crypto is at the forefront of U.S. regulations. Is it bullish though?
David Hoffman David Hoffman Aug 9, 20216 min read
Now They Fight Us

Dear Bankless Nation,

This headline was on the front page of the Washington Post yesterday:

The ‘infrastructure bill’ has become a monumental, bipartisan piece of legislation that will allocate over $1 trillion towards various U.S. infrastructure projects.

But it’s being held up over debates on how it impacts the crypto industry.

Ladies and Gentlemen, take a look around. We’ve made it. Crypto is now a determining force inside of the U.S. political arena.

We are no longer a niche industry of computer nerds tinkering with magic internet money. Instead, we are at the center of the political discourse as regulators finally come to terms with the fact that:

  1. Crypto is here, and it’s powerful
  2. Bad crypto legislation is not in the best interest of the U.S.

We now have powerful advocates inside of Congress making sure this industry is getting the treatment it deserves, and they are successfully steering the U.S. ship in the direction that we need it to go.

A Non-Partisan Issue

It’s become clear that the issue of crypto regulation isn’t a topic that is divided across party lines.

This isn’t a debate between Democrats and Republicans. Members from both parties have taken up the crypto-banner to fight for this industry. Republican Senators Pat Toomey (Pennsylvania) and Cynthia Lummis (Wyoming) have teamed up with Democrat Senators Ron Wyden (Oregon) and Kyrsten Sinema (Arizona) in order to put forth better legislation into the infrastructure bill.

Last Thursday, Senators Rob Portman and Mark R. Warner offered a competing amendment as a potential compromise, which excluded PoW miners and wallet provides from the overbearing reporting requirements, but importantly still left DeFi, DEXs, and other DeFi-related service providers out in the rain.

Interestingly, the Biden administration formally supported this compromise, leading many in the industry to suspect that it’s DeFi that is the real target, and concessions to the PoW industry weren’t really concessions at all.

Rob Portman, who was responsible for the proposed amendment tweeted this morning that he has come to an agreement with Warner, Toomey, Sinema, and Lummis have reached a new agreement on the amendment that will be much more pro-crypto:

This happened just a few hours ago, and has lead to the statement out of the Senate Banking Housing and Urban Affairs committee: Toomey, Warner, Lummis, Sinema, Portman Announce Agreement on Digital Asset Reporting Requirements in Infrastructure Bill

“…it would result in the application of reporting requirements far too broadly and ensnare individuals, developers, and other elements of this ecosystem that could not comply with a reporting mandate.

…we propose to incorporate this important amendment into the infrastructure bill and urge our colleagues to join us in enacting this bipartisan clarification.”

4:28pm EST, Today

The current drama of the infrastructure deal is unfolding as I write this.

Just a few moments ago, Senator Richard Shelby (Republican, Alaska) objected to the proposed Toomey, Warner, Lummis, Sinema, Portman Amendment as a protest for not getting his own amendment for $50b in defense spending.

As a result, he’s against all other amendments, including the crypto-compromised amendment.

So we don’t have the amendment included, and now we default back to the strictest version of the bill, without any amendments.

Basically, everyone is now a broker. Congrats! 🥳 🙄

Summarized by Neeraj from Coin Center, he “tanked it to grab more military spending

Should We Be Alarmed?

Taken literally, this is bad news because it is the strictest possible version of crypto-regulations. Everyone is a broker, and we all have these insane reporting requirements that would effectively grind this whole entire industry to a halt.

A thought experiment for the reader: Do you think this is actually going to stop this industry from moving forward?

In my opinion, absolutely f***ing not.

Why? Because this is what is going to be the result of this:

The regulations ask that all wallet providers, DEX operators, nodes, validators, and all the other ecosystem participants report transactions to the IRS.

What they don’t realize is that Ethereum is a full, unabridged ledger of every single transaction that we’ve all collectively made. They’re asking that we download the Ethereum history (350+ gigabytes) and report the transactions.

This is why the markets aren’t reacting to this news. The ‘asks’ from the regulators are non-sensical. They are so nonsensical to the point that they are invalid, and regulators simply haven’t realized how nonsensical their regulations are.

Sometime between now and 2023 when this bill goes into effect, these crypto-regulations will have to evolve into a more educated and precise version, or be completely un-enforceable.

Who Is Going After Crypto?

Our industry has garnered bipartisan support for protecting our industry and keeping innovation inside of U.S. borders. But who are the people that are opposing this? Who has the interest of actually regulating this industry to the point that is completely hamstrung? Who have we pissed off?

Turns out, one of the main proponents of the nonsensically-strict crypto regulation was the U.S. Treasury Secretary and former chair to the Federal Reserve Janet Yellen.

It appears that the largest opposition to the improved crypto regulations was coming from the White House itself. Janet Yellen and the Biden Administration have shown where they stand: advocating for the version of the amendments that specifically hamstring the DeFi industry the most.

The dividing line on this issue is not down the aisle between the Republicans and the Democrats.

Instead, the dividing line is a generational divide. It’s between the incumbents who are afraid of change and those who want to support this massively growing and innovative industry.

Janet Yellen has collected over $7.2m in “speaking fees” from the banking industry and is also one of the main opposers to the proposed amendments to the infrastructure bill.

To me, this is no different than historical attempts for incumbents to maintain their grips on power, by using lobbying and regulation to hamstring future competition.

History is not kind to these types of people.

Innovate or die.

Why This Is Actually Bullish

Bullish Reason #1: The market doesn’t care

The market has something to say about all this, and it’s saying that it doesn’t care even a little bit.

Since the infrastructure bill got proposed, $ETH is up from $2,300 to $3,100 and BTC is up from $33,000 to $45,000, which have been the strongest market movements out of these assets since Q1 of this year.

It’s not like the market is going to ‘price in’ these regulations over the next few months; if it was something to be concerned about, the market would have reacted by now.

The market doesn’t care.

Even in the face of bad news, markets are up 25% in the last 2 weeks.

Bullish Reason #2: This is a rite-of-passage.

Bad regulation is the precursor to good regulation, and even though the regulations are bad, the fact that crypto-native language is being found on the senate floor is insanely bullish. “Validators, miners, wallet, DeFi” have carved out a pigeon-hole inside the Senate.

The top regulators in the U.S. have now heard these words.

Like senator Ted Cruz said, “There are not 5 Senators in this room that really understand crypto”.

We’re in up-only mode from here.

First they ignore you

then they laugh at you

then they fight you (👈 we are here)

then you win

Bullish Reason #3: This is legitimizing.

As an industry, we need this test. It doesn't even matter if we pass or fail it; the fact that the test occurred at all is insanely bullish.

This industry now has the legitimacy that it forced U.S. Senators to talk about crypto on the senate floor. We are out of the dark corners of the internet, and fully in the mainstream conversation now.

Crypto Is Unstoppable

The whole point of this industry is to be censorship-resistant.

Internet native protocols are not domiciled inside of nation-state borders.

Ethereum is designed to be a regulation-resistant technology.

Regulators and incumbents can make our lives more difficult, but they can’t stop us.

You can’t ‘regulate’ DeFi—you can only push it elsewhere.

Regardless of the outcome of the bill, this has been a great test to see where the power lies. The people trying to regulate this industry have no power over it, and that’s why they are scared. The true power lies with the people who ally with this industry.

Bend the knee, or fade into history.

- David


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David Hoffman

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Co-owner at Bankless. Optimistic storyteller of frontier technology.

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