Bitcoin and Altcoin Prices Sink After US Infrastructure Bill Becomes Law

Bitcoin and altcoin prices are down sharply, with the leading crypto losing 9% to currently be priced at $59,078.

The Ethereum price is giving up 10% at $4,253, Litecoin is off 15% at $233, Polkadot down 13% to $40 and Uniswap 12.9% lower at $21.

Yesterday US president Joe Biden signed into law the infrastructure bill, which is though to have triggered selling. Tax reporting requirement for digital assets are included in the bill in a form unchanged from the initial wording that critics from  said would hurt the industry.

All “brokers” will now be required to fill in a 1099-B form, or something similar, which is currently used to report income from self-employment earnings, dividends, interest and other payments received to the Inland Revenue Service (IRS).

At issue is the legislation’s broad definition of a broker, which is defined as “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”

Although aimed at brokers, the legislation provides to all types of cryptocurrency, even including non-fungible tokens (NFTs).

Adding to the negative crypto sentiment today were comments overnight from Twitter CFO Ned Segal said  investing company capital in crypto “doesn’t make sense right now”. Elsewhere, Marathon Digital was also served with a subpoena by the US Securities and Exchange Commission yesterday concerning funds raised for a new mining facility.

Exchanges will have to report all crypto payments received valued at over $10,000

Back with the tax issue, in addition to reporting the size of payments transacted, the new law also includes so-called “travel rules”, which will require “brokers” to keep and supply a record of the identity of each party to a transaction, which will likely be especially burdensome for many companies, projects and protocol developers.

The industry has lobbied hard against the changes but failed to make a dent. From wallet services to decentralised exchanges, US-based projects are now trying to get to grips with how they come into compliance with the new law.

The Inland Revenue Service now has to to write the new law into the tax code, which depends on the agency determining the intent of Congress. With that in mind, the outcome may not be as problematic as many in the US crypto industry fear, as the code could define less broadly what a “broker” is.

Another part of the legislation also requires “brokers” to report all payments received of more than $10,000 in cryptocurrency. Critics have argued that this provision is unconstitutional.

Should investors be worried about extra tax reporting?

Either way, individual investors should probably not be too worried at this stage, although the legislation could be the the first shot in a series moves by regulatory agencies to start regulating crypto more clearly.

But Shehan Chandrasekera at crypto portfolio management and tax calculator CoinTracker thinks problems will arise for individual investor when they send crypto funds from self-custody wallets, where they are responsible for storing their private key, to exchange wallets.

“These 1099s are going to be inaccurate for the most part, because these exchanges don’t have visibility into what you have in your self-custody wallet or what you’re doing in decentralized finance, or DeFi, applications,” points out Chandrasekera.

As a result a centralised exchange may have to require the sender of funds from the self-custody wallet (if the amount is over $10,000) to tell the exchange how much they bought the crypto for in order for the reporting to be complete.

Bitcoin price to $135k by end of 2021?

Aside from the infrastructure bill becoming law, the crypto market may have been due for a pullback after coming close to signalling overbought conditions on 8 November when it printed an all-time high above $67k. On 10 November the price briefly hit yet another ATH at $69,000 .

Market participants will be concerned that at the time of writing the bitcoin price has lost support at the crucial $60k level. A collapse in support from that level will likely signal an acceleration in selling before buyers re-enter.

However, Analyst Plan B, whose controversial stock-to-flow model in its “worst case scenario” forecasts the bitcoin price reaching 135k by the end 2021, says that prediction is still in play.

The same model predicts bitcoin will be priced at around $98k by the end of November.

In such a scenario, the current pullback, which could turn into a deeper correction, would be viewed as a buying opportunity. Whether the market thinks so will be born out over the next few hours/days.