Politicians regulating cryptocurrencies a spectacle
If you ask politicians and their staffers, many will tell you the truer representation of their work is found not in the cloak-and-dagger machinations of House of Cards but in the comedy Veep.
The U.S. Senate’s attempts to wrestle with a cryptocurrency tax reporting provision in the government’s new US$3.5 trillion infrastructure bill exemplified that perfectly.
It was an episode of ignorance, absurdity and black comedy, underscoring how politicians often have no idea of what they are regulating — and how dangerous that can be.
It would have been entertaining had it not been so sad.
In spirit, the crypto provision at issue was uncontroversial. It would increase reporting requirements for cryptocurrency “brokers,” such as exchanges.
The industry had no quarrel with that. But the provision had defined the term broadly, so much so that its very author, Senator Rob Portman, said it was not the intent.
The industry said that language would ensnare those who are not brokers — such as software developers and miners who facilitate transactions — and who thus have no ability to gather, process or submit the supposedly required information. That would stunt innovation, the industry said.
So, lobbied by a suddenly united cryptosphere, senators amended it. Then another, competing amendment entered the fray to blow everything up.
That amendment, whose authors included Portman, was backed by the White House. It so bafflingly did not solve the problem, it can be chalked up only to incompetence and not malice.
The new language excluded only a certain type of miner, the “proof-of-work” type that process Bitcoin, accused of being environmentally harmful.
Evidently, in the same way that Portman clearly had no idea his broadly worded provision might have unintended consequences, he did not know that other types of mining exist. Ethereum, for example, is moving to what is called a “proof-of-stake” model.
Portman’s camp then amended its amendment at least twice, the last time only half-addressing the issue. Luckily for the industry, the differing factions in the Senate ultimately came to a compromise.
But the final amendment needed a unanimous vote, and one senator who had nothing to do with any of it decided this was the time to stand on principle.
Richard Shelby, representing Alabama, in fact, personally agreed with the amendment. But he effectively single-handedly scuttled everything because he could not get his own defence-spending amendment added.
In Shelby’s view, if he could not get what he wanted, then nobody could. Like how the character Petyr Baelish is described in Game of Thrones: “He would see this country burn if he could be king of the ashes.”
Amid all that, Sen. Ted Cruz, ever the venerable statesman, argued for removing the cryptocurrency provision entirely. To do so would take away a mechanism to fund the new infrastructure spending, threatening the entire bill. But certain parts of the crypto world would no doubt like that, and the reasoning Cruz cited almost makes him the measured voice of reason.
“If we gathered all 100 senators in this chamber and asked them to stand up and articulate two sentences defining what in the hell a cryptocurrency is,” he said, “you would not get greater than five who could answer.”
Regardless of his broader motivation, Cruz was right on one point: “We shouldn’t regulate something we don’t yet understand. We should actually take the time to try to understand that.”
But the question remains whether lawmakers can be trusted to ever get it, for it’s an issue beyond cryptocurrency. Recall lawmakers’ cringeworthy moments in the 2018 hearings with technology chief executives, such as when Rep. Steve King posed a question about his granddaughter’s iphone to Google’s Sundar Pichai.
Here in Canada, Ontario Premier Doug Ford, in quarantine amid the pandemic, reportedly had to be taught how to use a computer by his staffers. Once, Malaysia’s prime minister at the time, Najib Razak, standing right in Facebook’s headquarters and next to Mark Zuckerberg, had publicly mistaken the place for “Twitter HQ.”
And even if the politicians can grasp the subject, there is every chance some will continue to be nakedly petulant like Sen. Shelby.
Perhaps the regulatory process should be left to non-partisan specialists. As lawmakers wrangled over the crypto provision, the new Securities and Exchange Commission chair Gary Gensler was asking for more power to regulate the industry. Or perhaps the answer is in self-regulation. It is good enough for lawyers and doctors, beholden to bars and medical boards, after all.
Either option is, of course, antithetical to everything crypto stands for, whether granting more power to unelected bureaucrats or elevating a select few to police the rest. But there is unfortunately no simple solution. Regulation is not only understandably needed but also an inescapable fate. Something has to give. Or else we will see more of the farce we have seen this past month.