Coinbase CEO blasts new US tax proposal as "pointless" and will undermine crypto innovation in the US

The proposal to expand cryptocurrency tax reporting in the bipartisan U.S. infrastructure bill has been questioned by many industry insiders.

The proposal would impose stricter rules on businesses that deal in cryptocurrencies, expand reporting requirements for brokers, and require brokers to report digital asset transactions worth more than $10,000 to the IRS. Revenue from the new crypto tax would be used to partially fund $550 billion in transportation and power infrastructure investments.

Industry participants are concerned that the provision will include miners, node operators/validators, software developers and hardware manufacturers, among others, rather than just trading platforms such as exchanges or over-the-counter desks that actually provide these services.

Coinbase CEO Brian Armstrong is the latest high-profile figure to speak out against the proposal, tweeting that the crypto tax proposal contains provisions that could have a "profoundly negative impact" on the U.S. crypto sector and could force digital innovation to move overseas.

Like many other opponents, Armstrong questioned the broad wording of the bill, saying:

“The proposed bill expands the definition of the term ‘broker’ to anyone who facilitates the transfer of digital assets. This means that almost anyone in the crypto ecosystem (miners, validators, smart contracts, open source developers, etc.) could be considered a broker with extensive reporting obligations, which makes no sense. For example, smart contracts are not companies and cannot be modified to collect KYC information or issue 1099s. They are just software that runs on a blockchain and can be used by anyone. The infrastructure bill also imposes sweeping and unprecedented reporting requirements that will force exchanges like Coinbase to monitor customer transactions in a more invasive manner than other traditional financial institutions.”

Industry insiders have responded quickly, with crypto-friendly Oregon Senator Ron Wyden, Wyoming Senator Cynthia Lummis, and Pennsylvania Senator Pat Toomey submitting an amendment, in which several senators pointed out that some provisions in the bipartisan infrastructure agreement should not apply to developers, miners, or blockchain companies in the crypto space. Specifically, the amendment proposes that the definition of a broker does not include anyone who engages in "verifying distributed ledger transactions," "developing digital assets or their corresponding protocols," or dealing with mining software or hardware.

Armstrong called on U.S. crypto activists to support the amendment and called for a clearer and narrower definition of crypto brokers.

It is unclear when the Senate will vote on the amendment. However, Senate Majority Leader Chuck Schumer (D-N.Y.) hopes to have all the amendments completed by Thursday and vote on the actual bill by Saturday, Politico reported.

If the Senate votes to pass the bill next week, it will go to the House of Representatives for a vote this fall before it can be sent to the President's office to be signed into law.