The Big Story

The taxman com.eth

The latest twist in the battle over crypto brings good news to all the bitcoin miners and blockchain coders out there: The taxman may let you slide, after all.

The proposed infrastructure bill rocked the crypto world with a plan to require "brokers" to report crypto transactions to the IRS — with a definition written broadly enough to sweep in miners, node operators and software developers who might have no idea who's swapping crypto through them.

Now, the Treasury Department is reportedly about to unveil a narrower definition of "brokers" — and it will exclude those who are building and sustaining the blockchains that support cryptocurrencies.

Is this the final word on the crypto tax debate? The Bloomberg report was sourced to "a Treasury official" who did not speak on the record but promised that a formal announcement was forthcoming.

• That underlines the confusion in Washington over crypto taxation. The measure is projected to raise $28 billion to help pay for the ambitious $1 trillion infrastructure plan, but generated a lot of pushback from the crypto industry and its allies in D.C.
• Most crypto players say they don't object to the idea of taxation and transaction reporting per se — it's the idea of imposing the requirements on entities who don't even have the information tax collectors would in theory be asking them for.
• Despite efforts by Sens. Cynthia Lummis of Wyoming and Pat Toomey of Pennsylvania to tweak the language on crypto brokers, the legislation passed as-is in the Senate. It will go to the House where, in a good sign for crypto, some representatives — including California representatives Ro Khanna, Anna Eshoo and Eric Swalwell — are also pushing for a narrower definition of crypto broker.
• The reported IRS plan "makes a lot of sense" and "validates the concerns" of many in the crypto industry, said Jesse Proudman, CEO of Makara, the first crypto roboadvisor service registered with the SEC.
• "We had faith" that regulators would "implement reasonable guidelines for how to fairly tax and oversee the industry without stifling innovation or hampering growth," he told Protocol.

But the crypto confusion may drag on for years. Crypto taxation is just one small wrinkle in the ambitious infrastructure bill. Comprehensive crypto regulation is a long ways away.

• Broad financial reform based on regulation can be challenging, said Christine Parlour, a professor at the UC Berkeley Haas School of Business, who cited the "classic example" of Dodd Frank, which overhauled the financial system in the wake of Wall Street's 2008-2009 crisis.
• Congress legislates, then agencies regulate. All of that takes time. The 2010 law "included provisions that were made concrete by the agencies — sometimes many years after the passage of the bill," Parlour told Protocol.
• The crypto world is just so new and unfamiliar to lawmakers and regulators stuck in the old definitions. The problem is "the old labels do not apply," she said.

"Be thankful I don't take it all." The Beatles tune — "If you drive a car, I'll tax the street" — may not define the IRS's approach to crypto. "It is not unusual for the agencies to come up with operational definitions when legislation is ambiguous," Parlour said. That's another form of tax relief.

— Ben Pimentel

A MESSAGE FROM SINGAPORE EDB

Expanding to Asia can be difficult, but Singapore is here to help. The Singapore Economic Development Board's guide to setting up in Singapore has all the information you need to find the right partners, talent, and connections to succeed in Asia.

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From Protocol | Fintech

How buying a bank turned LendingClub around. CEO Scott Sanborn explains how the fintech pioneer's bold decision to buy Radius Bank paid off big time.

Overheard

• "No one should be surprised by what is coming." —CFPB acting director Dave Uejio, in a staff memo, noting the agency's two priorities are "consumers facing hardship due to COVID-19 and the related economic crisis, and racial equity."

• "Due to Visa's high cost of payments, beginning 15 September 2021, Amazon will apply 0.5% surcharge to purchases made using Visa credit cards on Amazon.sg. To avoid this surcharge, we encourage you to use a debit or non-Visa credit card as the default payment method in your account." —Amazon in a note to customers on a first-ever surcharge on Visa credit cards in Singapore.
  
• "The world has up to now been too forgiving of people deploying insecure systems which companies manage rather than fix. The wonderful thing about DeFi is that it is not forgiving in that way." —Mark Miller, CTO at Agoric, on the $600 million Poly crypto hack.
• "Crypto has arrived as a political force. Tech policy may never be the same." -- Author Azeem Azhar on the crypto-related infrastructure bill debate in Washington DC.

3 Questions With...

Prashant Fuloria, CEO, Fundbox

What was your first foray into the world of fintech?

Back in 2003, in my second week as a Google product manager, I was assigned to a team that was working to help the company go public by addressing deficiencies with its financial systems and processes that had been flagged by auditors. I learned a lot about financial systems, including payment processing, and that eventually led me to become Google's first product director of billing and payments.

What fintech sector is most overrated right now?

After the success of companies like Afterpay and Affirm, "BNPL" has become the new "AI" — mostly a buzzword slapped on as a label to make businesses look attractive. More amusingly, investors are actually responding to BNPL labels without considering first principles — profitability, growth and defensibility.

What was your biggest career mistake?

I learned the hard way that being nice and being kind are two very different things. As a "young" manager, I would hold back in difficult conversations and soften my direct feedback, for fear of hurting the other person's feelings. But ultimately, by trying to be nice, I was not doing the kind thing, which would be to help someone grow by providing them the critical feedback they needed.

Need to Know

• A Senate bill would expand SBA loans to fintechs. Sens. Tim Scott of South Carolina and John Hickenlooper of Colorado proposed the legislation to lift the decades-old cap on Small Business Lending Company licenses.
• Banks are debating the Fed's rule clarification on debit networks. The rule requires merchants to have a choice of debit networks, but implementing that online has been tricky .
• Albert launches Albert Cash. The personal finance company is introducing a mobile banking and financial management account app, which includes features for budgeting, automatic saving and cash back rewards. Sutton Bank is the bank behind the curtain.

Making Moves

• Dionne Warwick is all-in for Dogepalooza. The celebration of "all things DOGE" will take place in October in Texas and multiple other cities.
• Tom Brown is joining Nyca Partners. The investor and Paul Hastings lawyer will become a partner at the fintech venture capital firm.
• Rich Sullivan is Acorns' new chief financial officer. The former Twitter finance vice president is joining the micro-investment software company which is expected to go public soon.
• Jeneen Minter is GoFundMe's new chief financial officer. Minter had served as CFO and analytics officer of Material Bank.

Deal Flow

• Uala was valued at $2.45 billion. The Argentine personal finance app raised $350 million in the latest big fintech deal in Latin America.
• Chime is now worth $25 billion. The neobank raised $750 million and could go public in the first half of next year.
• FreshBooks raised $80 million. The Toronto-based cloud accounting software company was funded by Barclays, Bank of Montreal and JPMorgan.

A MESSAGE FROM SINGAPORE EDB

Expanding to Asia can be difficult, but Singapore is here to help. The Singapore Economic Development Board's guide to setting up in Singapore has all the information you need to find the right partners, talent, and connections to succeed in Asia.

Learn More

Data Point

15x

That's the average valuation multiple on 2022 sales for Coinbase, PayPal, Square and Robinhood, compared to 7x for Schwab and 3x for Capital One and Ally Financial.