Congress Targets Crypto Investors with New Regulations

Jul 30, 2021

Crypto Investors Have A New Target On Their Back

Congress just painted a bullseye on crypto brokers...

This week we explore:

• The one thing Dems and Republicans have always been able to agree on (and a new bill that both sides are quickly getting behind)

• How cryptos could be a potential debt solution for Congress

• Why crypto investments have such a massive target on them right now from both sides (and why that’s not going to change anytime soon)

“If two people always agree, one of them is redundant.”

– Ben Bernake

The Big Picture

In today’s fast, loose world of investing, the rules have been set by the Federal Reserve in what is essentially a rigged game. Today’s investment landscape is basically nothing more than a continental virtual casino.

There’s negative interest rates, free money, and zero experience required to participate.

But one thing the government hasn’t been able to control (to this point) is cryptocurrencies.

The government’s main source of revenue is taxes. However, anonymous crypto investments are far more difficult to track than paper equities or real estate investments.

Pity the fool who gets between the government and their money. It seems the Fed loves giving money away lately. But the only thing the government enjoys more is collecting what’s owed to them.

This is especially true given the current debt ceiling issue and argument over fiscal policy as Republicans and Democrats go head to head under a national spotlight. But even as both parties continue to fight, they’ve found common ground on a few key issues around cryptocurrencies.

And that unity is one more reason why true wealth-minded, long term investors continue to be leery of cryptocurrencies ' ability to maintain their valuations over time.

The Big Picture

If there is one thing we can count on, it’s a Congress that is willing to continue driving our debt and national deficit higher. There is zero appetite from Democrats to balance the budget, and even though they preach fiscal responsibility, not many Republicans actually seem interested in balancing the budget either (despite the lip service they are now humming regarding sound money).

As the expansion of debt and deficits has become the new norm, the only real difference between the progressives and conservatives is: where will that money flow?

When Republicans control Congress, the debt of the day is funneled towards the military, big business and lower tax policies which are intended to drive growth by lowering taxes to instill business investment. When the Dems control the Congress, deficit spending gets directed toward entitlement and social programs, leading to tax programs which seek to redirect wealth.

While our political system has never been more polarized, there is one universal political agreement that every politician supports: deficit spending.

Make no mistake about it, the goal of politics is to get re-elected, and the best way to get re-elected is to push through policies which benefit constituencies.

Programs that drive growth require investment. Investment becomes impossible without more debt, especially when growth is non-existent.

The argument from Republicans when passing the Trump tax cuts was that it would pay for itself. When that policy was pushed through in 2017 our national debt stood below $20 trillion. By the time Trump lost the election in October of 2020, the national debt had increased nearly forty percent to over $27 trillion dollars.

Trump doubled the debt of Obama, who doubled the debt of Bush, who doubled the debt of Clinton. Rest assured that Biden and company will double the debt of Trump, and by the time 2028 arrives, our country will be close to $50 trillion in debt.

It’s why the drama likely to come over the debt limit is a phony political farce. Everyone knows we are going deeper into debt. How we are going to pay for it is where the real fun lies.

The Dems want higher wages for lower incomes and higher taxes on the wealthy -- which is, of course, in direct opposition to what Conservatives desire.

Which is why we are paying particular attention to the bi-partisan agreement that surfaced yesterday and caught the crypto world by surprise.

Cryptocurrency exchanges, investors, and their advisors were caught off guard Wednesday when a bipartisan Senate infrastructure agreement was released that included a large-scale increase in the requirements for crypto brokers and investors to report their transactions to the Internal Revenue Service.

Senator Rob Portman was the lead Republican negotiator. The provision includes portions of a Portman measure, according to a person familiar with the matter. The White House has also proposed similar ideas in recent months.

The estimate in the bill suggests that $28 billion would be raised in taxes from new reporting requirements.

The move is indicative of the kinds of hurdles that physical gold buyers have felt for decades. The more a currency threatens the power of the government and of the Federal Reserve, the more its believers and investors are labeled criminals, tax cheats, and kooks.

Gold is taxed at a 28% rate for capital gains because it’s considered a “collectible.” Interestingly this also applies to paper contracts and ETFs like GLD, whereas capital gains on “securities” are taxed at a 20% long term rate.

Taxes are one of the ways the government influences activity. Higher taxes discourage ownership. Discouraging investors to own bitcoin and other cryptocurrencies is at its infancy. We can expect a significant increase in the way cryptocurrencies are taxed forging ahead.

The more lucrative an asset is, the more interested the government is likely to be in taxing it -- especially if we are discussing capital gains taxes (which most crypto investors have never even heard of).

The more money people make selling crypto, the better for the government -- as long as they can actually tax it. This is why we believe mass crypto selloffs are a huge revenue generator for the Treasury, and why the target on crypto’s back is not going away anytime soon.

Finally, we have something both Democrats and Republicans can all agree on beyond spending our tax dollars.

Best,

Adam Baratta

CEO

Brentwood Research