4 Legislative Predictions for Crypto in 2023
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If you’ve seen the returns in my crypto portfolio this year, you would be ignoring my predictions for cryptocurrency market direction. So I’m going to stick with what I know and share some regulatory predictions for the crypto industry.
Few changes in the law
A few small victories will log small legislative fixes in bills that “must be passed,” like the Defense Authorization or Omnibus spending bills. The top candidate would be a de minimis exemption for smaller crypto transactions to exempt users from capital gains tax liability every time they buy a coffee with crypto. The protections for non-custodial crypto providers in Republican Rep. Tom Emmer’s bill could also do the trick. On the outside, a bipartisan stablecoin bill could be a possibility, although Senate Democrats still have a steep climb. However, don’t expect major bills — like Lummis-Gillibrand or Boozman-Stabenow — to be passed during the next Congress.
Crypto advocates in Washington have made great strides this year. No one could have predicted in 2018, or even 2020, that two US Senators — Democratic Senator Kirsten Gillibrand and Republican Senator Cynthia Lummis — would appear at multiple crypto conferences in 2022 to promote a bill they wrote, to create regulatory clarity.
Related: Sen. Lummis: My proposal with Sen. Gillibrand empowers the SEC to protect consumers
Bills like Lummis-Gillibrand and Boozman-Stabenow are good places to start the conversation, but moderate expectations are justified as neither bill will pass the next Congress. Consider the thin history of recent sweeping financial services legislation in the United States. No major financial services bill has passed Congress since the Dodd-Frank Act of 2010 — a bill that contained ideas from Democratic lawmakers as early as the 1990s.
Crypto advocates should get on with their work, but expect little legislation to get through the thin Overton window between Democratic Ohio Sen. Sherrod Brown, who is flirting with banning crypto, and the new House majority Whip Emmer, who is pushing for decentralized finance (DeFi), will fit. like a true crypto native.
The Securities and Exchange Commission can win some lawsuits
While I still hope that Ripple will eventually win its case against the Securities and Exchange Commission, the odds are against it in district court. The precedent for the test the SEC uses against Ripple, the Howey test for investment contracts, is flexible. In the past, the SEC has never brought cases under the Howey test against investment opportunities it intended to register, instead using them as a bludgeon against genuine fraud — and so appellate judges gave the SEC the benefit of the doubt.
If Ripple goes all the way to the Supreme Court, and if the judges in their case are just as eager to overturn administrative discretion as they were in a recent Major Questions Doctrine defeat for the Environmental Protection Agency, Ripple made an attempt to change the game and ultimately win its epic battle against the SEC.
2023 is the year when crypto users wake up and realize the need for privacy
A Cambrian blast is coming to crypto privacy as government surveillance efforts ramp up.
Crypto privacy in the United States is under sustained attack. We may have dodged the bullet from the Know Your Customer (KYC) laws that apply to private wallets for now, but we still face massive privacy threats. For example, this year the Ministry of Finance approved the only functional tool on Ethereum for complete privacy – Tornado Cash.
CoinJoin and Samourai Wallet do a good job of masking transaction history for the demanding Bitcoin (BTC) user. Leading crypto privacy coins like Zcash (ZEC) and Monero (XMR) currently offer different approaches to the trade-off between privacy and convenience. (Zcash offers optimal privacy with asset and transaction shielding and works on historical usability challenges, while Monero is more prone to statistical tracking but has achieved broader adoption.)
Related: Federal Reserve’s pursuit of ‘reverse wealth effect’ is undermining crypto
Nonetheless, privacy is still treated as a niche idea in crypto. Millions of users of Bitcoin, Ethereum and other chains are unaware of possible surveillance of their transactions.
Those who sold the top in 2021 but didn’t go through the tedious process of netting the capital gains owed will soon hear about the thousands of new Internal Revenue Service agents being trained to use simple block explorers and more sophisticated chainalysis tools will.
Between the United States and the European Union, both can lose
The European Union’s approach to new token launches seems more sensible than that of the United States, with a light whitepaper-based disclosure approach. However, its aggressive approach to monitoring private wallets threatens user privacy as the exchange is forced to KYC personal wallets.
The US has a chance to compete with Europe on crypto development if they can better streamline rules for centralized crypto entities — while leaving true DeFi alone — that are workable and ignore voices like Democratic Senator Elizabeth Warren, which would use KYC rules to effectively destroy crypto.
It’s too early to predict where this will go, but I can predict it’s going to be an exciting year for crypto regulation!
JW Verret is an Associate Professor at George Mason University’s Antonin Scalia Law School. He is a practicing crypto forensic scientist and also practices securities law at Lawrence Law LLC. He is a member of the advisory board of the Financial Accounting Standards Board, a member of the board of directors of the Zcash Foundation and a former member of the SEC Investor Advisory Committee. He also runs the Crypto Freedom Lab, a think tank fighting for policy change to preserve freedom and privacy for crypto developers and users.
This article is for general informational purposes and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
