The Biden Blueprint: Unpacking Administration Policies Shaping the Crypto Economy
The Biden Administration’s cryptocurrency policy has taken shape over the past 3+ years amidst significant market developments and wide-ranging perceptions of the Administration’s motives and intentions for the industry. While Biden’s election in November 2020 engendered hopes of both regulatory clarity and potential industry growth for some industry experts, the narrative has taken a stark turn recently, with reports decrying a purported drastic shift in policy designed to “kill” the crypto industry and erase billions of dollars in value gained with the surge in the prices of major cryptocurrencies like Bitcoin, Ethereum, XRP, and Solana. [1] This blog post objectively summarizes the Administration’s more noteworthy actions with respect to cryptocurrency.
November 2021: Passage of Infrastructure Bill. The passage of the bipartisan infrastructure bill in November 2021 ushered in significant changes for the cryptocurrency industry in terms of tax compliance and reporting. The law expanded the definition of “brokers” to include a wide array of participants in the cryptocurrency ecosystem, such as miners, wallet providers, and developers, thereby broadening the scope of entities required to report digital asset transactions to the IRS. This change aimed to align the reporting standards of cryptocurrency transactions with those of traditional financial transactions. The IRS rules, which came into effect in January 2024, mandate reporting cryptocurrency transactions exceeding $10,000 and have sparked widespread concerns among stakeholders over enforcement practicability, privacy implications, and the impact on the digital asset sector’s innovation and growth. [2]
March 2022: Executive Order No. 14067. On March 9, 2022, President Biden signed an executive order entitled “Ensuring Responsible Innovation in Digital Assets” which is more a general policy statement than a specific regulatory proposal. The order highlights several key areas of the Administration’s focus, including consumer protection, financial stability, and illicit finance. One of the Administration’s objectives according to the order is to explore the possibility of a U.S. Central Bank Digital Currency (CBDC) and its potential to modernize the existing financial system and maintain the United States at the forefront of technological advancements in the financial sector. It also calls for inter-agency coordination to address digital assets’ challenges and opportunities. [3]
September 2022: Federal Digital Assets Framework. As a follow up to the March 2022 executive order, the White House released a “Comprehensive Framework for the Responsible Development of Digital Assets” on September 16, 2022. The order includes directives for CBDC feasibility research, stronger regulatory compliance in the digital asset market, and infrastructure to counteract illicit finance. The framework underlines the need for international regulatory cooperation and equitable access to financial services via digital assets, promoting cross-agency collaboration to advance technology and protect American business and consumer interests in the digital economy. [4]
January 2023: Blog Post on Crypto Risks. On January 27, 2023, the Administration published a blog post outlining its “roadmap” for addressing the multifaceted risks posed by cryptocurrencies, including fraud, market manipulation, and financial losses to consumers. The post notes at the outset that “2022 was a tough year for crypto currencies,” and articulates specific strategies for leveraging the regulatory, technological, and enforcement capabilities of various government bodies to navigate the challenges of the cryptocurrency landscape. One example is greater collaboration between the Treasury, the SEC, and the CFTC to identify and address gaps in the existing regulatory structure, augment transparency, and ensure that digital asset activities are conducted within a framework that deters illicit finance and promotes financial stability. The blog also mentions launching awareness programs to educate consumers about cryptocurrency risks and calls on Congress to increase its involvement. [5]
March 2024: 2025 FY Budget Proposal. On March 11, 2024, the Biden Administration released its fiscal year 2025 budget proposal, which sets forth two significant tax reforms targeting the cryptocurrency sector. First, the budget proposes extending the “wash-sale rule” to digital assets, thus prohibiting investors from claiming tax deductions on losses for sales and repurchases of the same asset within a 30-day window. Second, the budget proposes the introduction of a new tax specifically aimed at crypto mining operations. According to the Administration, the tax—calculated at 30 percent of the electricity costs associated with mining activities—is designed to encourage more sustainable practices in the industry and could potentially generate $7.7 billion in revenue in the next ten years. However, this proposal has been met with industry backlash, notably from crypto advocate and U.S. Senator Cynthia Lummis (R. Wyo.), who denounced the tax as “punitive” and a threat to “any foothold the industry has in America.” [6]
As the landscape of cryptocurrency regulation continues to evolve under the Biden Administration, our team at Dynamis remains committed to providing timely and insightful analysis of these developments. We understand the implications that such regulatory changes may have on the industry and for all the stakeholders involved.
[1] Compare Jen Wieczner, Biden Presidential Win Seen as a Good Thing for Cryptocurrency, Fortune (Nov. 11, 2020), https://fortune.com/crypto/2020/11/11/biden-presidential-win-seen-as-a-good-thing-for-cryptocurrency/ (last accessed April 9, 2024) with Billy Bambrough, Joe Biden Quietly Planning to Kill Crypto and Destroy Billions of Dollars of Value After Huge Bitcoin, Ethereum, XRP, and Solana Price Surge, Forbes (Mar. 17, 2024), https://www.forbes.com/sites/digital-assets/2024/03/17/joe-biden-quietly-planning-to-kill-crypto-and-destroy-billions-of-dollars-of-value-after-huge-bitcoin-ethereum-xrp-and-solana-price-surge/?sh=78c94757ab87 (last accessed April 9, 2024).
[2] See, e.g, Alan Rappeport, Cryptocurrency in the infrastructure bill: The industry won last-minute concessions, N.Y. Times (Aug. 2, 2021), https://www.nytimes.com/2021/08/02/us/politics/infrastructure-cryptocurrency.html (last accessed April 9, 2024); Turner Wright, IRS Rules $10K Crypto Transactions in 2024, Cointelegraph (Jan. 2, 2024), https://cointelegraph.com/news/irs-rules-10k-crypto-transactions-2024 (last accessed April 9, 2024); Sandy Carter, Demystifying the $10,000 Crypto Reporting Payment Requirement, Forbes (Jan. 4, 2024), https://www.forbes.com/sites/digital-assets/2024/01/04/demystifying-the-10000-crypto-reporting-payment-requirement/?sh=1bb03b8156fd (last accessed April 9, 2024); Taylor Locke, President Biden to sign bipartisan infrastructure bill into law—here’s how crypto investors will be impacted, CNBC (Nov. 9, 2021), https://www.cnbc.com/2021/11/09/how-bipartisan-infrastructure-bill-will-impact-crypto-investors.html (last accessed April 9, 2024).
[3] See, e.g., Fact Sheet: President Biden to Sign Executive Order on Ensuring Responsible Innovation in Digital Assets, The White House (Mar. 9, 2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/09/fact-sheet-president-biden-to-sign-executive-order-on-ensuring-responsible-innovation-in-digital-assets/ (last accessed April 9, 2024); Arthur D. Long et al., The Biden Administration’s Digital Assets Executive Order and Its Implications, Gibson Dunn (Mar. 9, 2022), https://www.gibsondunn.com/the-biden-administrations-digital-assets-executive-order-and-its-implications (last accessed April 9, 2024).
[4] See, e.g., Fact Sheet: White House Releases First-Ever Comprehensive Framework for Responsible Development of Digital Assets, The White House (Sept. 16, 2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/09/16/fact-sheet-white-house-releases-first-ever-comprehensive-framework-for-responsible-development-of-digital-assets/ (last accessed April 9, 2024); White House Releases Fact Sheet on Digital Asset Development, Dechert LLP (Oct. 5, 2022), https://www.dechert.com/knowledge/onpoint/2022/10/white-house-releases-fact-sheet-on-digital-asset-development.html (last accessed April 9, 2024).
[5] See, e.g., Brian Deese, et al., The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks, The White House, Nat’l Econ. Council (Jan. 27, 2023), https://www.whitehouse.gov/nec/briefing-room/2023/01/27/the-administrations-roadmap-to-mitigate-cryptocurrencies-risks/ (last accessed April 9, 2024); Biden Administration Releases Roadmap to Mitigate Cryptocurrency Risks, Nasdaq (Jan. 27, 2023), https://www.nasdaq.com/articles/biden-administration-releases-roadmap-to-mitigate-cryptocurrency-risks (last accessed April 9, 2024).
[6] Casey Wagner, U.S. Treasury once again proposes new crypto tax rules to “modernize” code, Blockworks (March 11, 2024), https://blockworks.co/news/us-treasury-2025-greenbook-crypto-taxes (last accessed April 9, 2024); Mike Dalton, Biden’s 2025 Budget Targets Crypto Tax Loopholes, Expands Digital Asset Oversight, CryptoSlate (March 11, 2024), https://cryptoslate.com/bidens-2025-budget-targets-crypto-tax-loopholes-expands-digital-asset-oversight/ (last accessed April 9, 2024); Radek Zielinski, Biden’s Tax Plan Sparks Crypto Industry Backlash, ReadWrite (March 18, 2024), https://readwrite.com/bidens-tax-plan-sparks-crypto-industry-backlash/ (last accessed April 9, 2024).