The Plot Against Crypto

Was an amendment to a cryptocurrency proposal just politics, or a conspiracy?

By Jeff John Roberts

I'm not big on conspiracy theories. The notion that the moon landing was faked or 9/11 was an inside job or that the 2020 election was rigged—all total nonsense. But as for what happened in Washington, D.C., this week, it's hard not to see a conspiracy of some sort.

If you missed it, the U.S. Senate was poised to amend a key bill so that crypto entities like miners and validators would not be defined as "brokers." The broker definition would force those entities to report their customers' tax obligations to the IRS in the form of 1099 forms—a process the digital activist group EFF says would create a new "surveillance requirement" for crypto.

The proposed amendment was seen by many as a common sense solution since complying with the tax obligations would create an onerous or even impossible task for many crypto businesses. And then came the 11th hour switcheroo.

Out of nowhere on Thursday night, two Senators provided a competing amendment that would maintain the exemption—but only for proof-of-work projects like Bitcoin. Other crypto projects that used consensus mechanisms like proof of stake would be exposed to a crushing compliance burden. Then, shortly after the surprise amendment dropped, the White House issued a statement to support it.

What the hell happened? Where the did the surprise amendment come from? And why did President Biden—whose party is normally all about the environment—favor energy-intensive proof of work over greener types of crypto?

Some chalked it up to basic government incompetence, concluding the gnomes who drafted the new amendment didn't understand how crypto works. But others see a more sinister plan at work. In this view, expressed by Messari founder Ryan Selkis and others, crypto haters in the government are pursuing a one-two punch: first, use the new tax bill to cripple proof of stake and DeFi projects with compliance costs; second, come after Bitcoin later using environmental regulations.

If that sounds like conspiracy loon stuff, consider one more element. Namely, the Washington Post reported that U.S. Treasury Secretary Janet Yellen orchestrated the counter amendment to sideswipe the crypto industry. Her goal was to carry out what her agency failed to do through regulations last December—get its arms around crypto through new reporting requirements. In this light, the massive $1 trillion infrastructure bill offered an opportunity: Attaching a crypto tax provision to the bill would limit the opportunity for debate, especially as the bill is President Biden's top priority and few in Washington would slow it down for the sake of the crypto industry.

All of this means that, yes, there's a good chance the White House and its allies did hatch a plot against the crypto industry. But why? It's easy to suggest it's because our political leaders are old or stupid or anti-technology. While this is often true, I think there's something else at work: Crypto threatens one of the two biggest levers of state power.

The first of these levers is control over the armed forces. If a government is truly in charge, it has a monopoly over the military—otherwise it's a failed state. The second major symbol of state power is control over the currency. That's why governments everywhere have draconian anti-counterfeiting laws, and why messing with the money supply will lead to serious repercussions. And that's what Bitcoin and crypto did. They messed with the money supply, creating something the government can't really control.

In this context, the response by Yellen and the White House is understandable. The U.S. dollar is literally the coin of the realm and it is also a major geopolitical asset—the dollar's use around the world ensures the country can borrow cheaply and exert control over other countries. This is a good thing for the free world. Better for the U.S. to have the dominant world currency than tyrannical states like China, Iran, or Russia.

Still, the White House overreacted. Crypto is indeed a technology that is often beyond the reach of the U.S. government. But the same can be said of the internet—another radical technology that scared the hell out of many lawmakers when it went mainstream 25 years ago. In the case of the internet, more enlightened minds prevailed and Congress even passed far-sighted laws to help the growth of the web and create Silicon Valley.

Right now, the fate of crypto in the U.S. hangs on a knife edge. On Saturday, the Senate will vote on whether to crush the industry with unreasonable tax obligations or to let it breathe and let its innovations flourish on American shores. Decrypt will be reporting on the outcome—if the crypto industry's worst fears come true, they can blame it on a conspiracy.

This is Roberts on Crypto, a weekend column from Decrypt Editor-in-Chief Daniel Roberts and Decrypt Executive Editor Jeff John Roberts. Sign up for the Decrypt Debrief email newsletter to receive it in your inbox in the future. And read last weekend's column: Behind the Breakup of FTX and Binance.