Casey Wagner

Crypto investment firm Paradigm is launching a new public policy arm aimed at advancing innovation-friendly lawmaking and policymaking in the US.&nbsp;



Led by <a href="https://blockworks.co/tag/paradigm">Paradigm</a> special counsel Rodrigo Seira and policy manager Brendan Malone, the Policy Lab will provide research to “guide critical policy decisions,” Seira said.&nbsp;&nbsp;



The initiative kicks off with two inaugural academic fellows, Primavera De Filippi from Harvard University’s Berkman Klein Center and Agostino Capponi from Columbia University.&nbsp;



The two will focus on “regulatory equivalence, which is the comparability of legally-bounded and technologically-bounded systems and how the same policy outcomes can be achieved through regulation or through technological architecture,” Seira said.&nbsp;



<a href="https://blockworks.co/tag/pat-toomey">Pat Toomey</a>, a former Republican senator who served until 2023, and Steve Israel, a congressional Democrat from New York who retired in 2017, are also part of the policy arm’s founding team.&nbsp;



“This is a fast-moving, technical space and it’s important that policymakers have access to rigorous research and analysis to inform their policy efforts,” Toomey said. “I encourage members of Congress and their staffs to take full advantage of these resources to improve their understanding of new technology and examine the theoretical basis for financial services laws.”&nbsp;&nbsp;



Paradigm’s policy push comes as the crypto firm continues to grow its presence in the US regulatory space.&nbsp;



In July, the firm <a href="https://blockworks.co/news/paradigm-says-sec-wrongfully-charged-bittrex">filed an amicus brief in support of Bittrex</a> in their legal battle with the SEC, arguing that the agency is making an “unsupported attempt to expand its jurisdiction over crypto secondary markets.”



That same month, Paradigm <a href="https://policy.paradigm.xyz/writing/joining-paradigm-alexg">added</a> a government affairs lead, Alex Grieve, to its team. Grieve is a Capitol Hill alum and previously helped build the crypto practice at regulatory advisory firm Tiger Hill Partners.&nbsp;



&#8220;We are at a critical point in the national discourse over crypto policy,” Seira said. “Everyone paying attention realizes the status quo is unsustainable; the lack of clarity is unnecessary, and it is pushing innovation offshore while leaving American consumers at risk. We need sound, technical research to provide insight for a much needed regulatory overhaul.&#8221;



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paradigm

Paradigm assembling new policy lab at ‘critical’ time for crypto regulation

James Cirrone

Coinbase is now working with three former US lawmakers to “help navigate” an evolving crypto regulatory landscape in a possible bid to reestablish a cordial relationship with American regulators.&nbsp;



The first members of Coinbase’s Global Advisory Council will include former Senator <a href="https://blockworks.co/tag/pat-toomey">Patrick Toomey</a>, R-Pa., and two former Democratic congresspeople, Tim Ryan and Sean Patrick Maloney.&nbsp;



<a href="https://blockworks.co/tag/coinbase">Coinbase</a> told investors that the formation of this council marks a “significant step” in dealing with <a href="https://blockworks.co/news/coinbase-sec-rulemaking-petition">regulatory pressures in the US</a> and globally in a statement last Friday. Though there was a heavy focus on the US, where the crypto exchange is based.&nbsp;&nbsp;



“We chose to build in America because we want to be part of the solution and believe America would be best served by embracing the potential of crypto and blockchain technology,” Coinbase wrote. “Our new Advisory Council will play a key role in helping us work with regulators to achieve that goal.”



Coinbase is following in the footsteps of <a href="https://blockworks.co/tag/binance">Binance</a>, which formed <a href="https://blockworks.co/news/former-us-senator-will-chair-new-binance-global-advisory-board">a similar advisory board in September 2022</a>. It was headed up by Max Baucus, an ex-Democratic senator from Montana who was US ambassador to China.&nbsp;



Coinbase’s new council will also work closely with members of another Coinbase advisory board which includes former SEC Chair Jay Clayton and former CIA General Counsel Courtney Elwood, according to the company’s statement.



Coinbase established this new board following news that <a href="https://blockworks.co/news/coinbase-abu-dhabi-bermuda-derivatives">the crypto exchange is planning an international expansion</a>, with Bermuda becoming the first nation to embrace them setting up shop.&nbsp;



After the SEC served Coinbase with a Wells notice in late March over alleged securities violations, CEO Brian Armstrong said in April that completely <a href="https://blockworks.co/news/could-coinbase-leave-us">relocating outside the US</a> “is on the table.” His comments came just two years after Coinbase became a public company.&nbsp;



Coinbase also said that it has plans to expand the council this year “with a bipartisan group of leaders with deep regulatory expertise.”



Blockworks reached out to Coinbase but didn’t receive an immediate response.



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Coinbase

Coinbase Buffs Up With Big-name Advisory Board

Sebastian Sinclair

Retiring Sen. Pat Toomey’s stablecoin bill, which seeks to establish significant regulatory guardrails for the crypto industry, hit the Senate floor Wednesday — <a href="https://blockworks.co/news/us-senator-proposes-looser-stablecoin-regulation" target="_blank" rel="noreferrer noopener">eight months after the draft proposal</a> was first crafted.



However, with the congressional session ending on Jan. 3 2023, the bill would have to be reintroduced by another senator next session to have any chance of becoming law. The two-term senator announced his retirement in 2020.



The Stablecoin Transparency of Reserves and Uniform Safe Transactions Act of 2022 (<a href="https://www.banking.senate.gov/imo/media/doc/the_stablecoin_trust_act.pdf" target="_blank" rel="noreferrer noopener">TRUST</a>) would establish a new federal license aimed at issuers of payment stablecoins.



TRUST defines a payment stablecoin as being a digital asset that is directly convertible to fiat, widely used, recorded on a public ledger and issued by a centralized entity.&nbsp;



The April draft version of TRUST preceded the collapse of stablecoin issuer <a href="https://blockworks.co/tag/terra" target="_blank" rel="noreferrer noopener">Terra’s </a>ecosystem, which caused billions of dollars in losses of investor funds based on a failed <a href="https://www.blockworksresearch.com/glossary#algorithmic-stablecoin" target="_blank" rel="noreferrer noopener">algorithmic</a> design. But even then the bill limited stablecoin issuance to money-transmitting businesses, or holders of a state or federal license, including banks.



Nationally licensed payment stablecoins must be backed by “cash and cash equivalents or <a href="https://www.ecfr.gov/current/title-12/chapter-II/subchapter-A/part-249/subpart-C/section-249.20" target="_blank" rel="noreferrer noopener">level 1 high-quality</a> liquid assets denominated in United States dollars,” but they also become eligible Federal Reserve accounts and services, according to the newly introduced draft law.



The bill also aims while clarifying their status; they would not be considered securities if no interest is involved.&nbsp;



“I’ve put forward a regulatory model that won’t undermine competition by favoring entrenched incumbents,” Toomey said in a statement. “This bill will also ensure the Federal Reserve, which has displayed significant skepticism about stablecoins, won’t be in a position to stop this activity.”



The bill may serve as a model for similar legislation in the future, but will not be considered before the end of the congressional session on Jan. 3, 2023.



Should a similar bill pass, stablecoin issuers will be subjected to standardized disclosure requirements and attestation by registered accounting firms — historically obtained via <a href="https://blockworks.co/news/us-judge-orders-tether-to-prove-what-backs-usdt" target="_blank" rel="noreferrer noopener">lawsuits</a> and legal settlements.



It would also attempt to bolster privacy protections to financial transactions involving stablecoins by mandating the US Treasury not be allowed to collect nonpublic information unless a warrant is issued by a judge.



TRUST follows more than 16 months of deliberation, discussion and the solicitation of legislative proposals in what Toomey has described as an attempt to shield investors from financial risk while laying the groundwork for stablecoin innovation.



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Pat Toomey

Lame Duck Senator Leaves Stablecoin Bill Legacy

<div id="highlights-block_62e05494282dc" class="highlights">
 <ul>
 <li>A new bipartisan bill will change how crypto transactions are taxed</li>
 <li>As the law currently stands, anyone that uses crypto for any transaction, regardless of amount, must report gains on the value of the cryptoasset sent</li>
 </ul>
 
</div>



Two senators have proposed the latest bipartisan federal legislation addressing cryptocurrency — this time in a bid to exempt digital asset purchases of $50 or less from steep capital gains taxes.&nbsp;



Sens. Pat Toomey, R-Pa., and Kyrsten Sinema, D-Ariz., are sponsoring the bill — the Virtual Currency Tax Fairness Act — which would additionally prevent the IRS from collecting taxes from retail traders when the asset in question appreciates less than $50.&nbsp;



“While digital currencies have the potential to become an ordinary part of Americans’ everyday lives, our current tax code stands in the way,” Toomey said in a statement. “The Virtual Currency Tax Fairness Act will allow Americans to use cryptocurrencies more easily as an everyday method of payment by exempting from taxes small personal transactions like buying a cup of coffee.”



As the law currently stands, anyone using crypto for any transaction, regardless of the amount, must report gains on the value of the cryptoasset.&nbsp;



“I&#8217;m glad it seems to be indexed for inflation, because $50 now is going to be pretty meaningless going forward,” Kell Canty, CEO of Ledgible, said. “If we end up having inflation along the lines of what we&#8217;re seeing currently.”



To prevent buyers and sellers from taking advantage of the policy, the bill includes an aggregation rule to treat all sales or exchanges that are part of the same transaction as one sale or exchange.&nbsp;



The provision is intended to prohibit someone from breaking up a single purchase into numerous transactions under $50 (or under $50 gain) for each of the virtual currency exchanges to qualify for the de minimis exemption.



“For example, if I were to purchase something that is $500 with crypto (assume for simplicity, you have a basis of $0 in the crypto, so the gain is $500), without the aggregation rule, I could break that purchase into 10 separate transactions (think swiping your credit card 10 different times) and game the system to qualify for the de minimis exemption,” a Toomey aide told Blockworks. “The aggregation rule treats all 10 transactions as what it really is — one $500 transaction — and therefore the transaction would not be eligible for the de minimis exemption.”&nbsp;



The aide requested anonymity because they weren’t authorized to speak to the media.&nbsp;



The bill, if passed, could help increase the adoption of cryptocurrencies for transaction purposes, proponents say.&nbsp;



“The IRS first addressed the issue of taxation of virtual currency transactions in 2014, declaring that virtual currency should be treated as property for tax purposes,” Perianne Boring, founder and CEO of the Chamber of Digital Commerce, said. “That classification was a major setback for adoption because taxpayers were required to track gains and losses in the value of virtual currency each time it was used, hindering retail adoption.”&nbsp;



More people have been using cryptocurrencies for transactions in recent years. In 2020, the total number of transactions processed globally over the Bitcoin network surpassed 150 million, up from around 80 million in 2018, according to <a href="https://digiconomist.net/bitcoin-energy-consumption" target="_blank" rel="noreferrer noopener">data</a> from Digiconomist. 



“In terms of regulatory and tax implications, it should be the same way, just a fair equal footing for all payment methods, and that includes crypto,” Canty said.



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Kyrsten Sinema

Crypto Transactions Under $50 May Soon be Exempt From Capital Gains Tax

<div id="highlights-block_624dece6ffa04" class="highlights">
 <ul>
 <li>Sen. Toomey’s new stablecoin bill seeks to clarify that payment stablecoins are not securities and are not under SEC jurisdiction</li>
 <li>The existing regulatory framework for banks cannot be applied to crypto, Toomey said</li>
 </ul>
 
</div>



Sen. Pat Toomey, R-Pa., revealed a new draft of stablecoin legislation that would allow more flexibility around which groups are authorized to issue stablecoins.&nbsp;



The <a href="https://www.banking.senate.gov/imo/media/doc/the_stablecoin_trust_act.pdf" target="_blank" rel="noreferrer noopener">proposal</a>, released Wednesday, establishes a new federal license designed specifically for stablecoin issuers while preserving the state-registered money transmitter status for most existing stablecoin issuers. Additionally, the draft bill clarifies that insured depository institutions are permitted to issue stablecoins.



The legislative proposal comes as lawmakers continue to debate requirements for which institutions can issue stablecoins.



Jean Nellie Liang, the under secretary for domestic finance at the Department of the Treasury, appeared before Congress <a href="https://cms.blockworks.co/congressional-action-on-stablecoins-could-come-as-soon-as-this-month-source-says/" target="_blank" rel="noreferrer noopener">in February</a> to defend stablecoin recommendations from the President’s Working Group on Financial Markets (PWG). The report proposed that only federally insured depository institutions should be permitted to issue the tokens.&nbsp;



“[That proposal] immediately struck me as very, very narrowing,” Toomey said. “I was worried that this could import this whole massive regulatory morass that banks are subjected to, and you&#8217;re gonna impose that on someone because they want to issue a stablecoin? That didn&#8217;t make sense to me.”&nbsp;



Toomey’s proposal also establishes universal guidelines for payment stablecoin issuers, regardless of whether they are a state money transmitter or receiving a new federal license. These include mandatory disclosures regarding the reserve assets backing the stablecoin and subjecting them to routine audits by registered public accounting firms.



“I don&#8217;t think it&#8217;s a good idea to apply the existing antiquated transaction reporting regime that exists in the payment system today to new technologies like stablecoins,” Toomey said during a webcast to the media Wednesday. “Frankly, we ought to be updating that regime, not incorporating it on a new technology.”&nbsp;



The draft bill clarifies that payment stablecoins should not be classified as securities, a distinction that will help encourage innovation in the space, Toomey said.&nbsp;



“I think it is extremely important to provide clarity over the definition of what in the digital asset [space] constitutes security and what doesn&#8217;t,” Toomey said. “I think that&#8217;s already having a chilling effect on the development of new protocols and innovation…we have the SEC claiming that basically every digital asset is a security, I think that&#8217;s untenable.”



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Jean Nellie Liang

US Senator Proposes Looser Stablecoin Regulation

<div id="highlights-block_6227b12f93309" class="highlights">
 <ul>
 <li>Efforts are underway in the House and the Senate to regulate stablecoin issuers and oversee reserves</li>
 <li>The escalating conflict in Ukraine has led lawmakers to question how a CBDC might work in the US</li>
 </ul>
 
</div>



As stablecoins and their reserves have been increasingly scrutinized, bills designed to regulate the digital assets will likely be introduced by US lawmakers this month, according to a source familiar with the matter.



Different versions of the bill are expected to be rolled out in the House and Senate this month, the person said. The source was granted anonymity to discuss private information.



Both the House and Senate heard from Jean Nellie Liang, the under secretary for domestic finance at the Department of the Treasury, in February to discuss a recent report on stablecoins from the President’s Working Group on Financial Markets (PWG).



The PWG and Liang recommended that stablecoin issuers must be federally insured depository institutions — more commonly known as banks. More Democrats are starting to disagree with the guidance, the person said, but the upcoming bills, some of which will be bipartisan efforts, will center around creating rules for stablecoin reserves.



&#8220;There seems to be a bipartisan consensus that Congressmen want to prevent another situation like Tether, the stablecoin known as USDT that has been subject to enforcement actions and scrutiny from regulators for holding only a small portion of its reserves in US dollars,” said Ron Hammond, director of government affairs for the Blockchain Association. “The bills may include measures requiring stablecoin issuer audits and clearer guidelines about what assets can make up reserves and whether banks or nonbanks can issue stablecoins.&#8221;



The move comes after <a href="https://cms.blockworks.co/democratic-rep-stablecoin-issuers-dont-have-to-be-banks-with-100-reserves/" target="_blank" rel="noreferrer noopener">Rep. Josh Gottheimer</a>, D-N.J.,revealed in February an <a href="https://gottheimer.house.gov/uploadedfiles/dd._stablecoin_innovation_and_protection_act_of_2022.pdf" target="_blank" rel="noreferrer noopener">early draft</a> of legislation aiming to classify certain stablecoins as “qualified” if consumers can redeem the digital currency on a one-for-one basis with US dollars.



Recent concerns over Russia’s <a href="https://cms.blockworks.co/russia-accelerating-cbdc-efforts-as-us-eu-ponder-swift-ban-of-russian-banks/" target="_blank" rel="noreferrer noopener">central bank digital currency</a> (CBDC), which is currently in pilot, and Canada&#8217;s freezing of crypto addresses have lawmakers rethinking the risks associated with a US CBDC, the person added. It’s not the first time lawmakers have questioned the role a CBDC might play in the current financial landscape.



In January, during Federal Reserve Chair Jerome Powell’s testimony before the Senate Banking Committee, Sen. Pat Toomey, R-Pa., questioned whether a Fed digital dollar would be able to exist alongside a “well-regulated, privately issued stablecoin.” Powell, who <a href="https://cms.blockworks.co/powell-a-cbdc-would-make-cryptocurrencies-obsolete/" target="_blank" rel="noreferrer noopener">previously argued</a> that a CBDC would render private stablecoins obsolete, assured Toomey the two are not mutually exclusive.



While efforts to draft bills related to stablecoins have been in the works for some time, the escalating situation in Ukraine may delay future progress. One lawmaker’s office has already put their stablecoin work on hold, the person said.



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Congressional Action on Stablecoins Could Come as Soon as This Month, Source Says

<div id="highlights-block_62009ed1d6876" class="highlights">
 <ul>
 <li>China has debuted its digital yuan to foreign visitors and athletes during the 2022 Winter Olympic Games in Beijing</li>
 <li>Senator Pat Toomey is asking policymakers to keep a watchful eye on the performance of the eCNY, labeling it as a means to &#8220;facilitate illicit money flows,&#8221; and its capacity to enhance &#8220;China’s surveillance capabilities&#8221;</li>
 </ul>
 
</div>



China has debuted an international trial for its central bank digital currency (CBDC) at the 2022 Beijing Winter Olympics amid concerns from US Senator Pat Toomey (R-Pa.) over the potential for the digital yuan to circumvent US sanctions.



Digital yuan trials, which have been ongoing domestically since 2019, were introduced to athletes and foreign visitors on Thursday as a means to pay for goods inside the Olympic Village alongside Visa payments and cash. 



China is hoping to boost the digital yuan&#8217;s presence throughout the country with the Winter Olympics as its platform to showcase to the rest of the world.



The trial follows China&#8217;s recently announced list of <a href="https://coingeek.com/china-intensive-blockchain-trial-involves-164-entities-in-beijing-shanghai/" target="_blank" rel="noreferrer noopener">164 national blockchain</a> entities to join domestic retail CBDC tests that will examine the feasibility of its product across a wide range of industries. Crypto is banned in the communist state, but China is a strong proponent of blockchain technology, albeit in a much more private, centralized and censored form.



In a <a href="https://www.banking.senate.gov/imo/media/doc/toomey_letter_to_yellen_and_blinken_on_digital_yuan.pdf" target="_blank" rel="noreferrer noopener">letter</a> penned by the senator to Treasury Secretary Janet Yellen and Secretary of State Antony Blinken on Wednesday, Toomey asked policymakers to &#8220;closely examine Beijing’s CBDC rollout&#8221; during the games and to provide his office with a briefing by Mar. 7.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;Analysts have raised the eCNY’s potential to subvert US sanctions, facilitate illicit money flows, enhance China’s surveillance capabilities and provide Beijing with “first mover” advantages, such as setting standards in cross-border digital payments,&#8221; Toomey wrote.</blockquote>



Toomey is requesting knowledge on the CBDC rollout, including its distribution, user experience and the underlying source code to determine &#8220;ulterior motives,&#8221; censorship features or security flaws, according to the letter.



The senator is also seeking answers regarding the extent to which non-Chinese government officials, including the US, transacted in the digital yuan, among other requests. He said China’s crackdown on crypto presents an opportunity for the US to be the &#8220;forerunner&#8221; of crypto innovation, &#8220;grounded in individual freedom, and other American and democratic principles.&#8221;



Toomey, who is a member of the US Senate Committee on Banking, Housing and Urban Affairs, has long advocated for crypto regulation with a “do no harm” mindset and has previously asked the Securities and Exchange Commission to avoid hindering innovation as the US continues to figure out how to best approach fintech innovation.



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CBDC

China Debuts Digital Yuan at Winter Olympics Amid Warnings From US Senator

<div id="highlights-block_61ddec0fd40f9" class="highlights">
 <ul>
 <li>Powell appeared before lawmakers Tuesday to explain the central bank’s reaction to rising inflation</li>
 <li>The highly anticipated Fed report on cryptocurrencies will come in the next few weeks, Powell said</li>
 </ul>
 
</div>



Federal Reserve Chairman Jerome Powell appeared before lawmakers Tuesday to defend his position as head of the central bank and answer questions about what is next for monetary policy as inflation rages on.&nbsp;



Following <a href="https://cms.blockworks.co/confusion-abounds-as-us-lawmakers-debate-digital-dollar/" target="_blank" rel="noreferrer noopener">a series of remarks</a> about central bank digital currencies (CBDCs) and a Fed digital dollar, Powell announced during his <a href="https://www.banking.senate.gov/" target="_blank" rel="noreferrer noopener">confirmation hearing</a> Tuesday that digital asset industry members and lawmakers can expect a report on digital currencies in the coming weeks. Powell first mentioned the report in July 2021 with an original release date set for September.&nbsp;



Senate Banking Committee top Republican Sen. Pat Toomey questioned whether a Fed digital dollar would be able to exist alongside a “well-regulated, privately issued stablecoin.” Powell, who previously argued that a CBDC would render private stablecoins obsolete, assured Sen. Toomey that the two are not mutually exclusive.&nbsp;



<h3 class="wp-block-heading">Inflation woes rage on&nbsp;</h3>



On the eve of the release of the latest Consumer Price Index (CPI) report, Powell doubled down on his insistence that inflation is driven by prolonged supply chain pressures and a lagging labor market.&nbsp;



“There is a mismatch between demand and supply, we have very strong demand in areas where supply is constrained, particularly around goods, particularly around things like cars,” Powell said. “We think part of [the solution] will be the return of a greater supply.”&nbsp;



Central bank leaders had anticipated a faster return to the workforce and no one predicted that supply chain issues and bottlenecks would persist as long as they have, Powell said.&nbsp;



Markets largely rallied on Powell’s comments with the tech-heavy Nasdaq Composite rising as much as 1.16%. Bitcoin and ethereum also rose from recent slumps, up 3% and 5%, respectively. But the current economic situation leaves the long-term outlook uncertain, analysts warn.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“What we don’t know is how the economy will respond to simultaneously taking rates off the zero lower bound and the Fed draining liquidity from the financial system,” Nicholas Colas, co-founder of DataTrek research, wrote in a recent note. “Whatever happens — good or bad — will be a surprise to the market and, I would add, the Federal Reserve itself.” </blockquote>



Powell did not mention a set timeline for rate hikes, but forecasts predict that increases will be coming soon. Goldman Sachs’ latest outlook anticipates four rate hikes this year and Oanda expects an 85% chance that the first increase will come in March. The future of risk assets, analysts say, depends on when and how much rates are raised.&nbsp;



“Risk appetite returned on Wall Street after Powell signaled he expects the Fed to begin normalizing policy this year, but that a decision on balance sheet reduction could take up to four meetings,” Edward Moya, senior market analyst at Oanda, wrote in a recent note. “The path of inflation may drive quicker rate hikes and a sooner start to shrinking the balance sheet and that could be bearish short-term for risk assets such as cryptos, but equities will likely feel more pain.”



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Fed Chair Powell: CBDC and Stablecoins Can Coexist

<div id="highlights-block_61a6566bd7179" class="highlights">
 <ul>
 <li>Managing inflation expectations has proved challenging, and prices may remain elevated, even as the rate of inflation recedes</li>
 <li>Powell faced tough questioning from some senators as the Fed considers whether to accelerate plans to taper its regular asset purchases</li>
 </ul>
 
</div>



The Federal Reserve has a different definition of the term ‘transitory inflation’ than most Americans, Chairman Jerome Powell said Tuesday, suggesting that the word be “retired.”&nbsp;&nbsp;



Powell appeared alongside Treasury Secretary Janet Yellen before the Senate banking, housing and urban affairs committee about the Coronavirus Aid, Relief and Economic Security (CARES) Act Tuesday for the first of two days of testimony.&nbsp;



Lawmakers had a series of tough questions for the two officials, ranging from stablecoin regulation to bond tapering and inflation. Senator Pat Toomey, a Republican from Pennsylvania, expressed frustration with Powell’s long-time insistence that inflation is “transitory.”&nbsp;



“Everything is transitory. Life is transitory,” the senator said.&nbsp;



Powell responded by redefining the word that has ruled headlines for the better part of the year.&nbsp;



Most consider ‘transitory,’ in the context of inflation, to mean that higher prices will be short-lived, Powell said, but the Fed believes that ‘transitory’ means that inflation will not lead to permanent economic damage. It is a good time “to retire” the term, Powell said.&nbsp;



Nancy Davis, founder of Quadratic, believes Powell&#8217;s comments are overdue.&nbsp;



“He’s late to remove the word ‘transitory’ in my opinion. I think it has been very clear for some time now that inflation is impacting the real economy,” she said Tuesday during a question and answer session with Bloomberg’s TOPlive.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“In terms of its impact on markets, I think it means that the Fed is going to continue tapering and removing liquidity from financial markets. That means the potential for additional market volatility.”</blockquote>



Powell’s comments come after he insisted for months that higher prices would be fleeting.&nbsp;



“Policymakers and analysts generally believe that as long as longer term inflation expectations remain anchored, policy can and should look through temporary swings in inflation,” Powell said in August during his Jackson Hole policy forum address.&nbsp;



Prices have risen 4.4% year-over-year since September. The Fed’s inflation target is 2% annually. Powell has since insisted that higher inflation is due to supply chain issues and bottlenecks as a result of the pandemic.&nbsp;



When pressured on Tuesday to explain how experts’ inflationary predictions were so off, Powell again pointed to ‘unpredictable&#8217; supply chain issues.&nbsp;



“We didn&#8217;t predict the supply side problems, and those are really [non-]linear and hard to predict,” Powell said. “That’s really what we missed, and that’s why professional forecasters had much lower expectations for inflation.”&nbsp;



If inflation pressures persist, Powell said, it may be appropriate to hasten the pace of asset purchase tapering, which the Fed announced would begin this month.&nbsp;



“It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at our November meeting, perhaps a few months sooner,” he said Tuesday.&nbsp;



The Fed’s next meeting is scheduled for December 14 and 15. President Biden <a href="https://cms.blockworks.co/jerome-powell-secures-second-term-as-inflation-persists/" target="_blank" rel="noreferrer noopener">recently reappointed Powell</a> to Chair the Fed Board of Governors for a further four years. He still faces confirmation in the Senate.



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Federal Reserve

Powell: We Can Retire the Term ‘Transitory Inflation’

<div id="highlights-block_610d69ab41248" class="highlights">
 <ul>
 <li>Ron Wyden (D., Ore.) Pat Toomey (R., Pa.), and Cynthia Lummis (R., Wyo.) introduced an amendment Wednesday to provide clarification into the term ‘broker.’</li>
 <li>Some industry members fear that the language of their proposed amendment favors proof-of-work, the consensus mechanism pioneered by bitcoin, over proof-of-stake, which is employed by the ETH2 blockchain and others. </li>
 </ul>
 
</div>



An unlikely trio of senators from both sides of the aisle is trying to change a key part of the $1.2 trillion infrastructure deal currently being considered by Congress. Lawmakers’ indication that cryptocurrency crackdowns are coming has the digital asset industry up in arms.&nbsp;



If passed, the bill will require digital asset brokers to disclose investors’ gains earned from cryptocurrency, raising an <a href="https://cms.blockworks.co/is-congresss-infrastructure-deal-a-threat-to-the-us-crypto-industry/">estimated $28 billion</a> to go toward revamping roads, bridges and&nbsp; broadband.&nbsp;



Ron Wyden (D., Ore.) Pat Toomey (R., Pa.), and Cynthia Lummis (R., Wyo.) introduced an amendment Wednesday to provide clarification into the term ‘broker.’ In the first signal that a compromise may eventually be reached, Sen. Rob Portman (R., Ohio), who wrote the original provision, agreed and said clarification will be needed on Thursday. The White House has come out in support of the original provision.&nbsp;



The proposed amendment clarifies that digital asset miners and blockchain developers should not be treated as ‘brokers’ with tax reporting requirements. These parties do not have access to, for security purposes, the necessary identifying information about crypto holders and therefore should not be required to report, the senators say.&nbsp;



“Our amendment makes clear that reporting does not apply to individuals developing blockchain technology and wallets. This will protect American innovation while at the same time ensuring those who buy and sell cryptocurrency pay the taxes they already owe,” Wyden said in a statement.



<h3 class="wp-block-heading">A lack of understanding</h3>



On Thursday, a competing amendment was introduced from senators Rob Portman (R., Ohio), Mark Warner (D., Va) and Kyrsten Sinema (D., Ariz.). Some industry members fear that the language of the amendment favors proof-of-work, the consensus mechanism pioneered by bitcoin, over proof-of-stake, which is employed by the ETH2 blockchain and others.&nbsp;



“Under this amendment, proof-of-work chains (e.g. BTC), which algorithmically validates blocks without private information wouldn&#8217;t be responsible for guessing what transactions customers are doing in crypto,” said Sam Bankman-Fried,&nbsp; founder and CEO of FTX, in a <a href="https://twitter.com/SBF_FTX/status/1423529360406061061?s=20">recent tweet</a>. “But if a blockchain uses a [proof-of-stake] protocol, then it would be.”&nbsp;



The amendment implies that proof-of-stake would be required to report, Bankman-Fried explained, but these miners and developers are just as in the dark about individual trades as their proof-of-work counterparts.&nbsp;



The bill, cryptocurrency advocates say, is only the latest example that most of Washington has a long way to go when it comes to blockchain education.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“I would be interested to hear if any of the senators know what a consensus mechanism is and understand the difference between proof of work and proof-of-stake,” said Andrew Keys, managing partner at DARMA Capital. “I would bet the farm that none of them understand the difference. This is not tech neutrality, this is affording one type of technology different advantages based upon how a database works, and I think that&#8217;s very reckless.”&nbsp;</blockquote>



The bill has the potential to drive blockchain miners and developers out of the US, Keys argued.&nbsp;



“The additional reporting requirements and the additional hurdles are just going to move crypto offshore, which is actually going to disadvantage the United States,” said Keys.&nbsp;



<h3 class="wp-block-heading">Tax accountability</h3>



What crypto industry leaders see as an attack on innovation, some lawmakers see as a step in the right direction when it comes to holding corporations accountable.&nbsp;



“I support President Biden’s plans to crack down on widespread tax evasion,” Tammy Duckworth (D., Il.) wrote in a letter to a constituent. “The IRS Commissioner estimates the United States Government loses an average of $1 trillion per year in uncollected taxes that are legally owed but not paid.”&nbsp;



Crypto advocates largely agree: there is a tax evasion problem in the US. Bankman-Fried, who owns FTX.US, the exchange that serves customers in America, <a href="https://twitter.com/SBF_FTX/status/1423425222758178823?s=20">said</a> that he knows that crypto taxes sometimes go unreported and he is willing to work with regulators.



This particular bill, however, is not the most efficient way to address crypto tax issues, industry leaders insist.&nbsp;



“The US won the internet, FAANG, Facebook, Amazon, Apple Netflix, Google, are all US companies, they employ many US citizens and they do pay taxes in the US. Maybe not as much as they should, and that&#8217;s a separate kind of tax arbitrage conversation, but this is big,” said Keys. “This world is more global now that there is the internet, and these types of technologies will just move to different jurisdictions, and people that will benefit from that will also move, but it&#8217;s not going to stop the technology.”&nbsp;