The White House formally backed the last-minute amendment to the infrastructure deal in a late Thursday statement “to clarify the measure to reduce tax evasion in the cryptocurrency market.”
The statement by White House deputy press secretary Andrew Bates says that “the Administration believes this provision will strengthen tax compliance in this emerging area of finance and ensure that high income taxpayers are contributing what they owe under the law.” He continued:
The Biden administration, lawmakers, and central bankers are wrestling with fresh challenges posed by cryptocurrency, conferring in numerous meetings amid recent volatility in these digital assets.
White House officials were briefed by career staff at the Treasury Department about the risks posed by cryptocurrencies earlier this month, two people familiar with the matter said. The issue has also been raised in conversations with federal regulators involving Treasury’s Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau, although those discussions did not involve principal-level officials such as Treasury Secretary Janet Yellen.
Administration officials are studying potential “gaps” in oversight related to the crypto market, such as whether it can be used to finance illicit or terrorist activities, the people said. They have also discussed whether some protections are needed for average retail investors purchasing cryptocurrencies. The White House and Department of Treasury are also publicly backing a new plan to target cryptocurrencies as part of a broader effort to address tax avoidance.
For now, federal regulators do not currently see the wild swings in the crypto markets as likely to pose a threat to the broader stability of financial markets, though they believe the risks are worth monitoring, the people said. Administration officials are discussing whether there are guardrails on cryptocurrencies that can be imposed while still allowing investors to “dogecoin to their heart’s content,” as one person briefed on the matter said, referring to trades of a popular cryptocurrency based on a meme of a dog.-level
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The Biden administration, lawmakers, and central bankers are wrestling with fresh challenges posed by cryptocurrency, conferring in numerous meetings amid recent volatility in these digital assets.
White House officials were briefed by career staff at the Treasury Department about the risks posed by cryptocurrencies earlier this month, two people familiar with the matter said. The issue has also been raised in conversations with federal regulators involving Treasury’s Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau, although those discussions did not involve principal-level officials such as Treasury Secretary Janet Yellen.
Administration officials are studying potential “gaps” in oversight related to the crypto market, such as whether it can be used to finance illicit or terrorist activities, the people said. They have also discussed whether some protections are needed for average retail investors purchasing cryptocurrencies. The White House and Department of Treasury are also publicly backing a new plan to target cryptocurrencies as part of a broader effort to address tax avoidance.
For now, federal regulators do not currently see the wild swings in the crypto markets as likely to pose a threat to the broader stability of financial markets, though they believe the risks are worth monitoring, the people said. Administration officials are discussing whether there are guardrails on cryptocurrencies that can be imposed while still allowing investors to “dogecoin to their heart’s content,” as one person briefed on the matter said, referring to trades of a popular cryptocurrency based on a meme of a dog.
“They’re aware of the fact that there are all kinds of risks in the abstract and things to look out for, but they are still largely in a wait-and-see posture,” one person briefed on the matter said. The people spoke on the condition of anonymity to discuss the private government review.
Spokespeople for the White House, Department of Treasury, and CFPB declined to comment.
At the same time, both central bank officials and congressional lawmakers have talked increasingly about policies that stand to dramatically alter crypto markets. The House has passed and sent the Senate bipartisan legislation instructing federal regulators to study and clarify rules for cryptocurrencies. Lael Brainard, a member of the Federal Reserve’s board of governors, published an article on Monday highlighting the potential benefits of a digital currency created and managed by the central bank. A government-run digital currency could cut into cryptocurrency’s market share by offering a safer alternative to instantaneous digital transactions.
Particularly high levels of volatility in the cryptocurrency markets have rattled investors and highlighted to policymakers the potential dangers of the freewheeling sector. Bitcoin, the most popular cryptocurrency, crashed by more than 50 per cent from its prior peaks amid a broader crypto sell-off. Dogecoin fell by more than 10 per cent before paring back its losses. The crypto markets appear to have been rattled by Elon Musk saying Tesla would no longer accept bitcoin as a payment for vehicle, as well as Chinese officials suggesting new restrictions on financial firms tied to cryptocurrencies.
The recent market instability has compounded existing concerns about cryptocurrencies, including fears about the environmental impact created by things like bitcoin mining. Government officials also believe these cryptocurrencies make it easier for criminals to transfer money without detection. The market cap for cryptocurrencies topped $2 trillion (£1.4 trillion) for the first time this April, just a few months after it hit $1 trillion (£706bn).
Digital currencies operating have posed a conundrum for policymakers for years. They are hard to regulate in part because they are not controlled by conventional trading institutions, such as banks or other typical financial firms.
Cryptocurrencies drew less scrutiny when they first emerged. Their prominence was accelerated during the pandemic, when hundreds of billions of federal dollars pumped directly to consumers spurred casual investors to explore novel financial instruments. Institutional players, including some Fortune 500 companies, also got involved, leading to their further proliferation.
The amount of energy required to “mine” various cryptocurrencies has alarmed environmentalists, with bitcoin mining alone consuming more electricity than entire countries, according to the Cambridge Centre for Alternative Finance. “That is a staggeringly large number for something that is absolutely useless,” said Eswar Prasad, an economist at Cornell University. “It’s an environmental disaster.”
These fears have grown just as political realities make cryptocurrencies harder to stamp out. Industry groups say that as many as 20 million Americans currently own cryptocurrencies. As bitcoin and other cryptocurrencies grow in size and scope, they become more difficult to manage because more people have bought into the system who stand to be affected by a crackdown.
“I wish we had smothered this a decade ago before it grew into a $2 trillion monster,” said Jason Furman, a senior economist in the Obama administration. “Digital currencies are all cons and no pros — environment; crime; volatility; taking advantage of unaware investors. If they had any use at all we could debate it. But they don’t have any use at all.”
The extent of crypto’s rise has complicated a straightforward policy response, though several proposals have either emerged or are seen as likely. For instance, the Department of Treasury last week unveiled a plan to require cryptocurrency companies to provide the IRS with more financial information. The reporting requirements would hit firms receiving cryptocurrency with a fair market value of more than $10,000 (£7,100). That measure is tied up with the Biden administration’s broader tax and spending proposals, complicating its path toward passage.
“If you increase third party reporting for currency transactions, it will help significantly with tax compliance and that's what Treasury is proposing,” said John Koskinen, who served as IRS commissioner under the last two administrations. “It would make a difference. The statistics are clear: the more third-party information the IRS has, the higher the rate of compliance.”
“I don’t think this is something regulators should be concerned about, even if people putting their savings into it certainly should be,” Ozimek said. “It’s a really risky, speculative investment ... But should regulators be concerned about the price of art? That goes up and down rapidly, too.”