▶ 0:20:27All right. Good morning, everybody. And for those of who were complaining about the 9:00 a.m. start, um I'm actually part of the group that wants us to start at 8 a.m. So, we'll see how this is going to go. This was the compromise time. Um should shall we get ourselves going? Um, but before I tap the pretend gavvel, um, you I'm going to try to say this two or three times, and I even said it in the back of the room.
▶ 0:20:54Um, for many of us who've been around this for a while, I think I hold the record of being the very first person to use the word um, Bitcoin in the congressional record. I think it was 2011, Ron Paul's monetary oversight subcommittee in financial services and no one had any idea what I was talking about, but I had like a wired article about it. Um, and here we are a decade plus later.
▶ 0:21:22Um, now our job in this committee, I'm going to say it two or three times. I'll say it as part of the opening statement. We're the tax writing committee. We're going to try to figure out now as the committees with the regulatory oversight, financial services, the Senate companion make the rules, we now have to figure out how it fits into the tax structure.
▶ 0:21:48Um, and I will beg for both our members, the witnesses, help us on the tax regulatory, the the the the recognition of an asset, recognition of gain rule Um, if someone really really really wants to spend their time going back and forth on the regulatory aspect, I do suggest they ask for a transfer to the financial services committee. So, let's have an at let's let's have at this.
▶ 0:22:17Um good morning everyone and welcome to the oversight committee of the ways and means for the 119th Congress. Um we're actually trying to focus on ensuring digital asset policy for this century. Um thank you for joining us for this discussion. Um while much of today's hearing will be f focused on examining examining this evolving industry and discussing potential policy solutions with the committee within the committee's jurisdiction.
▶ 0:22:48It also is important to note the complex relationship between digital assets, traditional assets and how we equalize and create a sense of fairness in its tax and and our side of the the rules so we don't create also artificial Even today more and more companies are exploring ways to use crypto assets in their treasury management and their hedging book.
▶ 0:23:17This is something we have a great interest in and so help us understand both those management strategies and how they will also fit into a tax regime. Um you know currently the inter currently the internal revenue service code defines crypto as a property not currency.
▶ 0:23:38However, there are very few additional rules specific to digital assets, leaving many stakeholders often confused when it comes to the tax That is our fixation here. Help us create at least our understanding so the brilliant staff sitting behind us both on the left and the right can actually help us build the rules, the code and what the future looks like. So we have stability.
▶ 0:24:06So if innovation's going to come, that innovation isn't coming because it's a tax leakage or there's an arbitrage there. We're really trying to make sure we understand what we're doing here. Additionally, and equally and equally as important, we must use today's hearing to learn more about what Congress can do to help retain the leadership of this evolving industry, these digital assets into this keeping them in this country.
▶ 0:24:35Um also aligning the tax code with the regulatory certainty all but ensures American becoming and ret remaining the crypto capital of the world. Um I look forward to the discussion. Um often when I have the benefit of sitting in the chair we I'm going to do something slightly differently. I'm going to save my questions to the end.
▶ 0:24:58um because sometimes uh there's one of the beautiful things about this committee is we have some folks who are actually somewhat more technical on this subject area. So I will ask all of you to be at your aame as we sort of go through this. So I'm going to introduce our witnesses and then let's have at it. Um,
▶ 0:25:22you you don't want to introduce your witness now. You wanted to No, Miss Miss
▶ 0:25:27Thank you, M. Uh, I want to thank all of our witnesses for being here today. The timing of this hearing and this week's floor activity is not lost on me, House Democrats or American people for that matter. We are less than two weeks away uh from the single largest transfer of wealth from working Americans to the top 1% in the uh one big ugly bill.
▶ 0:25:52While billionaires and millionaires receive extensive tax cuts, House and Senate Republicans have taken health care away from 17 million Americans. This should not be lost on any of us, especially those of us who represent rural America. In states that didn't expand Medicaid, our rural hospitals are really a quite concern. Despite these dire consequences of the new law for Americans, House Republicans are trying to turn the public's focus to digital assets.
▶ 0:26:19Republicans are, or at least attempted to yesterday, uh bring the Clarity and Genius Act to the floor this week, but have uh no luck so far. As ranking member, I agree that Congress needs to examine digital assets as a whole and look forward to discussing the tax treatment of dis digital access access assets including cryptocurrency with you all today. I think it's really really important that we as Americans lead in this area.
▶ 0:26:48I can tell you that over the 14th 14 14 years that I have been in Congress, the rate in which digital assets have gone from niche blog post uh to the front page of global publications is something to behold. It is undeniable that digital assets including cryptocurrency have transformed digital payment and investment. As digital assets take a larger role on the world stage, it is important that we protect consumers.
▶ 0:27:16we remove bad actors and that we ensure fair tax treatment for all. We must work to strengthen rather than weaken the guard rails in place to protect Americans. Earlier this year, President Trump launched his own meme coin. The media has reported that these coins have no intrinsic value but have a net uh but have netted him over $300 million in fees.
▶ 0:27:44It is alarming that 80% of the coins market uh were held by the Trump family and its partners. Uh I I came to Congress to fight for families uh in my rural community of uh Alabama and not to uh further uh ingrandise the the the president. I think all of us could agree that it's pretty alarming that uh anything that we do uh will have direct consequences on our on our our president and his family.
▶ 0:28:12and it's something I think that we need to put guard rails on for the future. With that, I am excited to hear from all of our witnesses and I yield back the rest of my time.
▶ 0:28:22Thank you. All right, our witnesses. Um, Summer Mercer is CEO of Blockchain Association. Sarah Riley is vice president of and senior counsel at Fidelity Investments. Um Allison Manuri Manurro is head of staking policy and industrial affairs at the crypto council for innovation. Jason um summer shenan
▶ 0:28:52Santa that was sort of close is director of policy at coin center. Cory Frey is director of investment protection and consumer at the consumer federation of America.
▶ 0:29:08Frey Freyer.
▶ 0:29:10See, that's why I wanted her to introduce you.
▶ 0:29:14All right. Um, you each have five minutes and then when we get to questions, um, you know, we'll go back and forth and see the education of members of Congress and our staff. Please have it.
▶ 0:29:29Thank you, Chairman Schweer, Ranking Member Su, and members of the subcommittee. My name is Summer Mercinger and I'm CEO of Blockchain Association. We're the leading collective voice of the digital asset industry in the United States, representing more than 130 of the most innovative job creators and stakeholders in the blockchain economy.
▶ 0:29:51Our members, many who are startups and small businesses, are developing the next generation of the internet and financial infrastructure here in America. From software developers and infrastructure providers to investment firms and trading platforms, we are proud to advocate for the responsible growth of this transformative To ensure that growth and innovation happens here in the US, Congress must provide clear, workable tax rules for digital
▶ 0:30:21assets. Our tax code wasn't built for this kind of innovation and the result is costly confusion that harms consumers, small businesses, and overwhelms the IRS. Right now, every digital asset transaction, no matter how small, is a taxable event for everyday users. This is unmanageable for businesses.
▶ 0:30:45Critical blockchain activities like staking or token upgrades lack clear guidance creating legal risk and pushing development offshore. The situation is made worse by burd burdensome new reporting requirements. The IRS itself has say says it expects up to 8 billion new 1099DA forms annually.
▶ 0:31:06By our estimate, complying will cost the US taxpayers around $250 billion dollar and add four billion hours of paperwork each year. To put this in perspective, this single rule could increase the entire federal paperwork burden for American taxpayers and businesses by approximately 33%. Our industry supports tax compliance, but it must be achievable.
▶ 0:31:34We respectfully request that the committee provide much needed clarity and support American innovation by considering the following priorities. First is exempt dimminimous gains and losses from taxation. Clarify the character source and timing of income for mining and staking Clarify certain digital asset transactions or nonrecoogni recognition events including wrapping and unwrapping a digital asset.
▶ 0:32:04Adopt legislation to allow staking in the the US digital asset investment structures. Extend the marktomarket accounting method currently used by commodity dealers and traders to digital assets. Establish a new safe harbor for foreign persons trading in digital assets. Provide non-recognition treatment for gains or losses upon the digital asset transfers in connection with qualifying loan transactions.
▶ 0:32:30Allow charitable deductions for digital assets easily valued or regularly traded without requiring qualified appraisal. Reconsider the provisions of the infrastructure investment and jobs act that create barriers to the development of the digital asset industry. Allow digital assets to be held as investment assets and retirement accounts.
▶ 0:32:51Ensure that any update to wash sale and constructive sales rules for digital assets only pass as part of a comprehensive digital t asset tax package. Make research and development eligibility for blockchain development Digital assets represent a transformative opportunity for the American economy. But without modern, fair, and practical tax rules, we list we risk losing that opportunity.
▶ 0:33:21Blockchain Association and its members are eager and willing partners in this effort. We stand ready to serve as a resource to you and your staff. Thank you for your time and leadership on this critical issue and I look forward to answering your questions. Chairman Schwikert, Ranking Member Su, and members of the subcommittee, thank you for the opportunity to share Fidelity's perspective on digital assets and the importance of implementing a modernized tax framework.
▶ 0:33:50We also appreciate Chairman Smith and ranking member Neil's focus on this issue. My name is Sarah Riley and I'm senior tax council at Fidelity Investments based in Boston, Massachusetts. For over 75 years, Fidelity has been customer obsessed. where our customers are committed to investing. We build solutions to support them and believe a customer centric regulatory model is critical. We have nearly six trillion in assets under management and are one of the country's leading workplace benefits providers and America's largest IRA provider. Fidelity offers a unique perspective in the digital asset space.
▶ 0:34:20As one of the only established large financial institutions in the digital asset ecosystem, we are a bridge between traditional finance and digital assets. We began research and development on digital assets in 2014 and have offered custody and trading of Bitcoin since 2018 to support our institutional customers needs. Three years ago, we launched Fidelity Crypto for retail investors, which provides custody and trading of Bitcoin, Ethereum, and Litecoin.
▶ 0:34:44In 2024, following SEC approval, we launched two exchange traded products, the Fidelity Wise Origin Bitcoin Fund and the Fidelity Ethereum Fund. These products provide greater optionality and ease of access for our customers who wish to have invest in investment account exposure to digital assets. Our commitment to digital assets is firmwide. We believe blockchain technology and digital assets will play a transformative role in the future of finance. Similar to other pivotal technological advances such as the internet, this technology is an integral part of the evolution of the financial sector.
▶ 0:35:14And for that future to be realized, we need a clear fitforpurpose regulatory framework. one that fosters innovation, reflects the unique attributes of digital assets, and above all protects investors. We are encouraged by the recent progress in Congress toward establishing such a framework. But a modern regulatory framework is not complete without a modernized tax code. To support the growth of the digital asset ecosystem, including stable coins and decentralized finance, tax rules must keep pace with technological innovation.
▶ 0:35:39While digital assets may share characteristics with other types of assets, they are distinguishable in ways that necessitate change to ex the existing tax framework. Further, the use cases for digital assets are expansive, including being used for payments for goods and services, investments, governance, and for decentralized finance applications. This breadth demonstrates the need for thoughtful and tailored tax rules. The crypto industry urgently needs clear, consistent, and administral tax rules. Tax certainty supports industry growth and encourages business activity to grow domestically rather than offshore.
▶ 0:36:09In the absence of comprehensive guidance, taxpayers and institutions are left to rely on general tax principles and subregulatory guidance which fail to address the full scope of new challenges and complexities introduced by digital assets. This uncertainty has real consequences. It undermines taxpayer confidence. It results in inconsistent taxpayer outcomes. It makes compliance more challenging. It pushes innovation offshore. For example, ambiguity around the sourcing of digital asset staking rewards has already led to a significant shift of staking activity outside of the US.
▶ 0:36:39Tax legislation is needed to both update the existing code sections that should address digital assets such as those relating to securities lending, marktomarket elections, and US trading safe harbors, and to deal with novel concepts in the digital asset space, such as staking and stable coins. Most tax code provisions were written before the broad adoption of digital assets and thus do not specifically contemplate the tax treatment of digital assets.
▶ 0:37:00For example, despite the importance of staking for the integrity, security, and success of proof-of-stake blockchains such as Ethereum, important tax issues relating to staking are not adequately addressed by either the tax code or existing subregulatory guidance. The tax treatment of these activities and income generated creates novel tax questions that cannot be resolved solely by analogy to existing parts of the code, including how such rewards are sourced, among other questions. In many instances, digital assets face disperate treatment as compared with traditional investment assets such as securities and commodities.
▶ 0:37:31Despite the growing role of digital assets in our financial system, the inconsistency in tax treatment under various tax rules results in adverse outcomes for taxpayers and the industry overall. Additionally, modernization of the tax code would support increased compliance and reduce abuse. To support the industry, provision should be updated spec to specifically address digital assets. On behalf of Fidelity and the millions of customers we serve, we appreciate the invitation to share our views and contribute to this important dialogue.
▶ 0:37:58We applaud congressional efforts to identify and address the gaps in the existing tax framework to support US growth in the digital asset industry and we look forward to continuing to work with the committee to implement a modernized tax framework for digital assets. I look forward to your questions. Chairman Schweikert, Ranking Member Su, and members of the subcommittee. Thank you for the opportunity to testify today on how the United States can ensure that digital asset policy is built for the 21st century.
▶ 0:38:29I am pleased to represent the Crypto Council for Innovation, a global alliance of leaders across the digital asset space. We are active here in the US as well as in the EU, UK, and Asia Pacific and represent some of the largest and most prominent companies in the space. I am particularly grateful for the engagement and leadership of so many on this subcommittee.
▶ 0:38:50The digital asset sector has evolved significantly over the past decade into a dynamic and expanding ecosystem that now touches payments, capital markets, identity, and data infrastructure. Congress is already advancing foundational legislation to address market structure and stable coins. While the US has made encouraging strides toward a broader regulatory framework, gaps in tax policy continue to hinder compliance, investment, and enforcement.
▶ 0:39:17CCI and I respectfully submit that now is the time to modernize the tax code to reflect the realities of the digital economy. Crypto is more than just a new asset class. The technology on which it is based is the foundational layer for a more open, efficient, and inclusive digital economy. It is also not a monolith. Digital assets are transforming how we transfer value, access financial services, verify digital identity, and much more.
▶ 0:39:45While most are familiar with Bitcoin, the digital asset ecosystem has expanded far beyond it. Similar to the way that the internet makes possible apps that enable ride sharing, e-commerce, and much more, programmable blockchains are powering the next generation of decentralized applications. These systems enable faster, cheaper, and more equitable financial tools that empower individual ownership and control over data and assets. Staking is the engine that powers these blockchains.
▶ 0:40:13It's how proofofstake networks like Ethereum, Salana, and Avalanche stay secure and functional. While it varies from blockchain to blockchain, these systems rely on token holders who temporarily commit or stake their tokens for the chance to verify transactions and add new blocks to the chain, keeping the network accurate and current across the entire network of globally distributed computers. In return, they are rewarded with new tokens.
▶ 0:40:40In January 2019, when I started working on staking policy, the total value staked across proof ofstake networks was approximately $50 million. Today, over $660 billion is staked across dozens of networks that provide the infrastructure for today's use cases and ones that haven't yet been imagined. Staking is no longer a niche activity. It is the infrastructure layer of the new digital economy. A functioning digital economy requires a functioning tax framework.
▶ 0:41:10And right now, when it comes to staking, the process that secures most modern blockchains, we don't have one. Tax policy is not an isolated issue. It is a core pillar of the broader legal infrastructure needed to support digital asset innovation. As Congress considers stable coin legislation and market structure reform, it is imperative the tax modernization moves in parallel to avoid inconsistencies and ensure that the US is the crypto capital of the world.
▶ 0:41:37My written testimony includes greater detail, but in the interest of time, I will highlight three key recommendations for the development of a tax framework for digital assets. First, to promote responsible adoption of digital assets for payments, Congress should enact a dimminimous exclusion for small personal use digital asset transactions. Second, activities essential to securing and maintaining blockchain networks like staking and mining should not be discouraged by overly complex or burdensome tax treatment.
▶ 0:42:06Staking and mining rewards should be treated like all other created property. Third, a digital asset specific safe harbor should be created for foreign investors similar to those for securities and commodities. Income from staking should qualify as passive income for taxexempt and publicly traded partnerships and granter trust and other ETP structures should be updated to accommodate the staking of digital assets to make our products competitive. The US should want the next generation of internet infrastructure built here, not overseas.
▶ 0:42:37But right now, tax uncertainty is one of the biggest reasons developers and firms are looking elsewhere. If we want scalability for stable coins, decentralized finance, or any of the other applications built on top of proof ofstake networks, including the ones we haven't yet imagined, we must get the tax policy right. Thank you again for the opportunity to testify before you today. I look forward to your questions. Chairman Schweiker, Ranking Member Su, and members of the subcommittee.
▶ 0:43:06Thank you for the opportunity to testify today. My name is Jason Sammansado, and I'm the director of policy at Coin Center, an independent nonprofit research and advocacy center focused on the public policy issues facing Cryptocurrency networks allow individuals to transfer value directly to others anywhere in the world without relying on a third party.
▶ 0:43:26Since the introduction of Bitcoin in 2009, millions of people, including millions of US taxpayers, have used these networks to send peer-to-peer payments and conduct a wide variety of other activity. Yet, the tax treatment of these activities is often uncertain, impracticable, and in some cases fundamentally misaligned with wellestablished principles of tax law. Coin Center has long called for sensible and fair tax policy for cryptocurrencies that recognizes the novel manner in which these assets are created and used.
▶ 0:43:57Our goal is not to seek special treatment for cryptocurrency transactions, but rather to ensure they are taxed in a manner consistent with how comparable transactions are treated under the law. This hearing presents an important opportunity to begin addressing the current obstacles to that equal treatment. I will focus my testimony on three recommendations. One, creating a dimminimous exception for personal transactions. Two, clarifying that block rewards are only income upon disposition. And three, repealing the application of section 605i to crypto.
▶ 0:44:29The IRS treats most cryptocurrencies as property. This means that any sale, exchange, or use of cryptocurrency can trigger a capital gain or loss, no matter how small that transaction. For example, a user who spends a dollarback stable coin to buy a cup of coffee would face a surprisingly complex tax obligation. The user must determine the market value of the stable coin at both the time it was acquired and the time it was spent, even though any gain or loss is likely to be a fraction of a cent.
▶ 0:44:56Moreover, because blockchain transactions typically require users to pay small fees in the native asset of the network, the user must also calculate a capital gain or loss on that fee payment. Imagine if sending an email or text me message triggered a tax reporting burden each time. This is the type of tax compliance burden currently imposed on everyday users of these networks. In 1997, Congress recognized a similar problem with foreign currency transactions and created a $200 dimminimous exception.
▶ 0:45:26Coin Center has long championed a comparable fix for cryptocurrency users which would exclude gains on personal transactions below a certain dollar threshold. Thank you to Chairman Schweikert and Representative Delbanet for introducing legislation to create that sensible fix in past A core element of all cryptocurrency networks is that validators, so-called miners and stakers, are incentivized to support the network by the ability to mint newly created cryptocurrencies for themselves.
▶ 0:45:54This mechanism is central to how these networks function without a central authority. Rather than relying on a trusted intermediary, the protocol uses economic incentives to coordinate a decentralized group of participants to verify transactions. The IRS currently treats newly created block rewards as gross income upon receipt. But these tokens are not received from another party. They are created by the validator like a farmer grows a crop or an author writes a novel.
▶ 0:46:22The IRS's mischaracterization of block rewards leads to overt taxation, especially when tokens are depre depreciate or are offset by dilution. Congress should help ensure that block rewards are treated in line with existing tax principles applicable to newly created property and clarify that rewards only constitute income upon disposition. We also encourage the executive branch to promptly rescend its earlier guidance on this topic consistence with the positions in Josh Jarrett's lawsuit that we are supporting in the sixth circuit.
▶ 0:46:53Finally, the infrastructure act passed in 20121 extended section 605i reporting to cryptocurrencies. This provision requires anyone receiving over $10,000 in cryptocurrency to report detailed personal information about the sender. An artist receiving cryptocurrency for an NFT sale or a nonprofit receiving an anonymous donation face potential felony charges if they don't provide sensitive identifying information to the government which in some cases may be impossible to collect.
▶ 0:47:22Coin Center has challenged the constitutionality of this provision in federal court and we urge Congress to repeal or amend it. The promise of cryptocurrency lies in its ability to empower individuals and enable open innovation. But to realize that promise, the tax code must impose unne must not impose unnecessary or unfair burdens on individual taxpayers. By enacting reasonable reforms, Congress can ensure that users are taxed fairly and participation in these networks remains accessible to ordinary Americans. Thank you.
▶ 0:47:53Uh ranking member, chair, uh members, thanks for having me here today. My name is Corey Freyer. I am the uh director of investor protection at Consumer Federation of America. Prior to that, I spent three years at the SEC uh as chair Gensler's senior adviser on crypto issues across the agency. Uh and before that, I spent 15 years in Congress uh on the banking committee, on the House Financial Services Committee, um working on financial regulatory issues, including financial technology.
▶ 0:48:21Um and then before that, um I was a network architect. Uh and so um my entree into distributed computing happened about 10 years before Bitcoin uh existed uh in a project called SETI at home where you could lend your computing power to help Berkeley try to identify extraterrestrial life. Um so yeah, a little bit of a nerd. Um and um I think one of the things that you know and I actually wanted to say this as well um I also want to thank the staff.
▶ 0:48:51Um I've been on that side of the table. Uh it's a hard job. taxpayers are lucky to have you at bargain basement prices and especially at a time when we're losing a lot of talent uh in the federal service. It is great that you are here doing this job. It's really important. Um now that I've thanked everyone, I want to apologize in advance because I'm going to use a cliche that I'm sure this committee had has heard way too many times. Um which is that uh there are only two certainties in life, death and taxes.
▶ 0:49:21Uh I want to add another certainty to that which is that you should never make predictions about where technology is going to be in five or 10 years. Um I think if you went through this table and asked us all uh questions about tech, we one of us is going to look pretty dumb in 5 years. And that's why we have a set of regulatory laws that prevents regulators from making decisions based on technology. Our financial laws have us look at the economic reality. Uh and that's good because I'm a I'm a cryptocritic. That's well known.
▶ 0:49:50But uh when I was at the SEC, I was bound by rules to treat all technology fair. That's great. You don't want regulators picking winners and losers. Um it's important to the markets themselves. You can't treat like assets differently. Uh it harms the markets. It harms price discovery. Um the markets get deci get to decide who fails and who flourishes. Um now it's important when we're talking about clarity around crypto to be clear about what exactly it is.
▶ 0:50:19Um it is one uh in a series of of many innovations that have happened over the years. Uh the stock market used to rely on kids running wheelbarrows between exchanges and clearing houses. It's now completely digitized. Uh commodities futured markets used to rely on pits of people yelling at each other across the room like trading places style. Uh that has been almost fully digitized.
▶ 0:50:40Uh and checks used to be flown across the country in jets and now uh we have you can tap your phone on a little electric box and it tells a bank to make a digital entry on a digital ledger and that's how we deal with our money. Um and so what crypto is really about is this new settlement mechanism. So to the extent that we're going to make crypto policy, we need to focus on the actual difference between crypto and the rest of the financial system which is narrowly this different way of settling transactions. It's an impressive technology.
▶ 0:51:12I was very impressed by it. I think it's really interesting, but it is a very specific and identifiable thing and we have to keep that in mind uh while we're thinking about how to do regulatory policy and tax policy with regard to these assets. Um and there should be some clarifications regarding tax treatment. There should be some narrow clarifications regarding regulation.
▶ 0:51:31Um now when you think about that what that tech is then you can see that nothing about that tech justifies the business decisions that exist exist in the crypto uh asset system right now. Nothing justifies lesser treatment of investors or consumers. Nothing justifies large crypto compl conglomerates that mix uh many many different functions and replace arms length transactions with conflicts of interest.
▶ 0:52:00Um, and there's nothing that would justify different rules for crypto than we have for every other financial asset. And that's not just my opinion. Uh, there are a lot of, uh, business people, uh, the ICDA agrees with, uh, equal treatment of assets. Sifma has written letters to the SEC about equal treatment. Uh, and I want to leave you with a quote from a cryp crypto entrepreneur who also agrees with me.
▶ 0:52:21Bradley Garlinghouse, the CEO of Ripple, um, in 2017 said, "Regulatory uncertainty is just a euphemism for we wish we didn't have to follow SEC
▶ 0:52:41I appreciate um all the witnesses testimony. Um, shall we start with the chairman of the committee, Mr. Smith?
▶ 0:52:48Thank you, chairman, ranking member. It's great to be with you all this morning on this topic. Um, today digital assets are a rapidly a rapidly growing market with over 50 million of our fellow citizens invested in in some manner of cryptocurrency. Jobs in the digital asset economy expanded by 118% year-over-year.
▶ 0:53:13and the Bitcoin mining industry alone has generated 31,000 jobs. There is clearly an opportunity um and interest in encouraging further growth and and innovation in this space. Um, Miss Mercinger, how does the current tax treatment of digital assets affect the industry and its customers? And how might more tax certainty encourage growth and investment in the crypto economy?
▶ 0:53:45Thank you for that question, chairman. The current tax treatment of digital assets is complex. It's burdensome and it's costly. And for every dollar that is spent on complying with the tax code, that's one less dollar that is injected back into the business, back into innovation. And the tax code should never be a barrier to innovation.
▶ 0:54:06We need to modernize the tax code so we can level the playing field for digital assets, reduce these unnecessary burdens, and unlock the innovation and growth of the industry here in the United States.
▶ 0:54:20Thank you. President Trump has said he wants to make the US the the crypto capital of the world. Unfortunately, right now, we risk losing the race for innovation and global leadership on this front to other nations. Um, Miss Manerro, are there any lessons that we can learn from other nations that are are seeking to secure a more competitive advantage or perhaps things to avoid?
▶ 0:54:49And what will being the crypto capital of the world mean for American businesses, workers, and our broader
▶ 0:54:59Well, thanks for the question, chairman. Um, I think one thing we should think about is in the early days of the internet, we couldn't imagine all of the various use cases. There would be things like e-commerce, cloud computing, social media, and the associated jobs that would be created, the companies that were built right here in the US. and we created the policy framework both on the tax and the regulatory side that enabled those businesses to flourish here in the US.
▶ 0:55:25What happened was the rest of the world saw that they saw that we were the global leader in web 2 and now they're all competing to be the jurisdiction of choice for crypto and web 3. So the EU has already established a framework. The UK which was taking a phased approach is now um as of January of this year announced that they are going to do all of their frameworks this year. Um, and Japan especially is now enacting tax reforms to make them more competitive on the tax side.
▶ 0:55:51What I don't want to see happen here is something like chips where we used to dominate, we didn't have the right framework, that uh, business left and now we're spending billions of dollars to lure it back. So, I think that's the lesson to be taken away here.
▶ 0:56:05Agreed. um why we're doing this hearing. Um Congress can help um contribute to a healthy digital asset marketplace by ensuring that the laws and regulations are not overly burdensome for businesses, consumers, and taxpayers.
▶ 0:56:24For example, earlier this year, Congress, led by this committee, approved a resolution signed into law by President Trump that overturned a Biden administration rule seeking to regulate decentralized finance or de defy brokers by imposing unworkable reporting requirements on taxpayers and and small businesses, threatening to the digit the digital asset industry in the process. Um, Mr.
▶ 0:56:54Sman Sato, I would prefer to call you Jason because it's such a great name. Um, but aside from a need uh for more structure and certainty within the tax code, what are other regulatory hurdles or potential speed bumps that you see that exist today or could exist in the future that deserves this committee's attention?
▶ 0:57:19Thanks for the question. Um, I think as I highlighted in my testimony, probably the primary hurdle for individual users, um, which is where we focus our attention at Coin Center is on the, uh, taxation of very small transactions that are inherent in these networks. And so, uh, as a kind of first order, we have long promoted the idea of a dimminimous exception.
▶ 0:57:43I think on the regulatory front um your reference to the the broker rule brings up an issue that has been at the heart of the regulatory discussion for quite some time which is how do you differentiate between trusted institutions uh that play typical business roles in this community which should have uh you know obligations for example on tax reporting and identifying um you know where we run into developers just creating software that anybody could use and ensuring that we're not placing tax obligations
▶ 0:58:14on those developers. Um and and and that's kind of an important element of some of the bills that are going through on the regulatory side right now.
▶ 0:58:22Thank you. I um I'm reminded of words that President Reagan gave um when he was talking about just the functions of government and I think it it resonates today with um this industry, this hearing. Um, but Reagan Reagan always viewed that government would tax anything that's moving and if it continued to move, they would regulate it and if it stopped moving, they would then subsidize it.
▶ 0:58:52Um, we need to learn from those mistakes and make sure we create an industry that thrives and that's what we're looking to do. Thank you, Mr. Chairman.
▶ 0:59:03Thank you, Mr. Chairman. missile.
▶ 0:59:06Uh, first before I begin, I want to want to have this article from Reuters uh, entitled Crypto Exchanges Rushed to List Trump's Coin, leaving many losers and some big winners. Can I please submit that for the record?
▶ 0:59:22Uh, Mr. Fraer, uh, is it normal to like have in one day a coin listed? I mean, I know that you know the regulatory process, but I think that in one day to have our president's coin listed was pretty fast.
▶ 0:59:37It's it is genuinely unusual. Um uh Kraken was the first to uh list the coin. Uh I think the president announced it uh at 9:30 and by 1:30 the next day they had it uh trading on Kraken. Um, and I and I think even Coinbase acknowledged that um, it was not normal uh, under their process uh, to list it so quickly and it and it wasn't something they may have listed, but they said essentially the demand was high.
▶ 1:00:01Just for the record, wouldn't it be great if we had ethical rules that limited politicians who have power to sign laws, make laws, uh, limit their ability to do that while they're in
▶ 1:00:13I think that's really important just for faith in democracy and and fairness
▶ 1:00:17Yes. Um, you know, I started by talking about my uh Alabama district. My Alabama district is a is a civil rights district. So, it's historic cities like Birmingham and Tuscaloosa and Selma. Um, but it also includes a lot of the rural communities of the black belt where people are unbanked or underbanked. And so, for far too long, the families in my district have had limited access to capital. Full stop.
▶ 1:00:42Um and as we support, you know, explore this uh stable coins and digital assets, I know it has both promise and perils. Um I just really think it's really important that we think about the accountability. Um you know, innovation without accountability, I believe, is uh no blessing. And the folks who tend to be uh most hurt by that are those that are not financially savvy. So it's really important that we get this right.
▶ 1:01:10Um so I wanted to talk to you about the Genius Act. Do you think that the Genius Act uh act you know is it is it the best we can do in terms of regulatory and um and if not what do you think the biggest peril
▶ 1:01:23No I I really don't think it is. Um I think essentially what the bill does is make it easier for non-bank stable coin companies to get access to the Fed master accounts. Um they promised a different infrastructure for doing payments and now they want access to the public infrastructure that we already use. Uh and so I think they should compete on a level playing field with banks. Uh and so uh when you take that kind of activity out of well-regulated banks, uh it puts the economy at risk and ultimately it's taxpayers that have to bail it out.
▶ 1:01:51Thanks. Uh in terms of the IRS, um do we have the currently have the tools and the and the uh manpower that we need to actually regulate or to collect taxes on on on these kinds of transactions? And I know that the settlement is really really important. um and want to know your thoughts about how we can do that
▶ 1:02:11I'm not a tax expert. What I will say um my understanding is that the IRS is is not well staffed. Um and I think that makes it a real challenge to deal with uh new issues uh in a marketplace that moves quickly uh and where anonymity or pseudonymity is a big issue. Um so yeah, those are challenges.
▶ 1:02:29Um I miss Riley, I know that you are a tax expert. Can you talk to us about um the crypto industry and the type of tax regulations um that would help protect
▶ 1:02:44Sure. Thank you for the question, Congresswoman. Um as at Fidelity, we are very concerned um with protecting our investors, particularly um kind of your everyday retail investors. I think one of the issues right now is the lack of certainty and consistency. I think that makes following um you know compliance very challenging for everyday investors.
▶ 1:03:05They also may struggle to understand the tax consequences of um holding digital assets and I think that that um both hurts both the industry but it does hurt your everyday investor and I think for example um exchangeraded products are how many retail investors may have exposure to digital assets because they can hold them through their individual retirement accounts. they can hold them in their brokerage account.
▶ 1:03:31Um, there currently are some, you know, challenges and complexities in those rules in terms of giving those investors full exposure to the the value of those assets.
▶ 1:03:41I want to yield back reclaim my time if you only have 30 seconds. I have 30 seconds and I really want to just go on the record as saying that financial innovation is critically important. I remember in the 90s when we had derivatives and people didn't understand derivatives and we rushed I thought um to actually passing a law uh laws and regulations that weren't that had unintended consequences if you will and so while I am absolutely convinced that we as Americans should lead in this industry and I and I do know that the Europeans
▶ 1:04:12are and other uh global countries are are right behind us but I think that it's important that we um don't sacrifice accountability in in the name of in the guise of uh financial innovation and I as a um lawyer in New York used to do derivatives and people didn't understand it at all and uh we had to ultimately correct stuff through the DoddFrank legislation. I say all that to say Mr. Mr.
▶ 1:04:37Chairman, we have a big task ahead of ahead of us uh not only for the regulatory framework but also for the tax framework
▶ 1:04:43and it's one of the reasons I'm elated to have you as the ranker,
▶ 1:04:47Miss Fishbach.
▶ 1:04:53I feel very short when I can't reach the button down there. So, but thank you, Mr. Chair, and um thank you all for being here. appreciate this is a it's it's a fascinating topic and so I appreciate uh all of the um expertise that you provide. Um and I was going to ask Miss Mercinger but follow up from and forgive me I I am worse at pronouncing names than he is. So um Miss Merro and Mr. Sinet. Oh god.
▶ 1:05:22Oh there you go. Okay. Or maybe I'll just call you Jason. Maybe I'll just call you Jason too. But but I I just wanted to discuss some of the taxable activities that are unique to digital assets and some of the folks talked about staking and I believe they someone mentioned mining.
▶ 1:05:38Um and individuals or companies that engage in mining or staking often receive some form of income as a reward for their contribution to the network and I know it depends on the specific blockchain but generally mining and staking rewards come in two forms either newly minted assets or transaction fees. Um, so how should we think about the rewards received from mining or staking from a tax perspective? Um, I know that uh Jason, forgive me for my I that's awful.
▶ 1:06:04I shouldn't be I should be more formal, but you you you had mentioned property at some point, you know, mentioned creating or new property. And so I'm just kind of wondering how how do we get our heads around dealing with those um as a taxable in thing?
▶ 1:06:21Yeah. And no worries on calling me by my friends. Um my father might be a little disappointed watching, but he'll be all right. Um
▶ 1:06:27we'll say hi to him.
▶ 1:06:28Yeah, exactly. Um so, uh you're right in terms of uh supporting all of these networks. There are generally what are called validators, right? They might be minor, they might be stakers, um but they play some role in terms of validating transactions and getting rewarded for that work.
▶ 1:06:46Um, the block rewards issue that I mentioned comes specifically from that ability to when you are successful in validating these transactions, the rules of the network allow those validators to create new currencies for themselves. And so our position is like that is not income at the time that it's received. Um, it is kind of created property as I was mentioning. Um and that becomes really important particularly because um there is also like inflation rates with these networks right where they create new tokens.
▶ 1:07:16So it's not just that like oh you get new tokens and you automatically get value. It might be you know nominally that looks like it but there might be a difference in the actual um amount of value you receive based on the inflation rate broadly of the network. The other thing you mentioned was transaction fees which on some networks do go to these validators as well. I think from a simplicity perspective like it should also be treated the same as this kind of newly created property.
▶ 1:07:42Um because it's very difficult to kind of identify where the fees are coming in, where they're going out to one particular uh uh validator or or center of a transaction.
▶ 1:07:52Thank you very much. And I'd like to give Miss Mercinger or Miss Manurro an opportunity to respond. I've got two minutes. So if you each want a minute,
▶ 1:07:59Yeah, sure. So thank you so much for the question, Congresswoman. Uh the one thing I would add there is there's also um an issue if you don't treat these things like created property and you treat them as ordinary income at the time of receipt in terms of actual administra this could mean that a taxpayer could have a taxable event every day or according to some blockchains every 6 seconds. That's a nightmare. Um and so the issue is one of overt taxation as Jason mentioned. Um it's also an issue of dilution.
▶ 1:08:29As you can imagine, as these new tokens are created, the overall amount of tokens in the network goes up. And so if you are not uh receiving the appropriate share, your stake in the network overall is actually diluted. So you have a problem with overt taxation, you have a problem with dilution, and we have a real problem in terms of actually administering the tax policy on behalf of both the taxpayer and the IRS.
▶ 1:08:51Thank you. And Miss Mercinger,
▶ 1:08:53I'll try to do this really quick. Um I I like to look at simple um kind of demonstrations. Uh my dad is a farmer in South Dakota. He grows wheat, sunflower, um corn. And the idea of taxing these rewards upon receipt in my mind is much like, and Jason said this, taxing the farmer for the crops before they sell them. They wouldn't have the money to pay that tax until they sell their their crops.
▶ 1:09:19So taxing it at the point of the crop coming out of the ground or the crop being harvest just doesn't work. And it's the same idea here. The reward is is not a taxable event. It is a creation of um property for the individual validator.
▶ 1:09:38So just so that so once they totally dispose of and sell it like I I'm selling my I'm I'm going to the elevator and I'm selling that corn. Um, but so once they totally dispose of it, so all of those transaction, all that they're doing, and I know I'm out of time, but all that they're doing just gets to happen until they're done. So, thank you very much.
▶ 1:09:59Thank you, Mr. Mr. Chair.
▶ 1:10:02Mr. Fraer, when looking to uncover corruption, it's often said to follow the money. So, let's do that in the case of World Liberty Financial, the crypto platform that Donald Trump and his family's corporate entity largely own and profit from.
▶ 1:10:17On January 19th, 2025, the day before Trump's inauguration, billionaire Justin Sun announced he would be investing an additional $45 million into World Liberty and uh World Liberty's coins. In fact, on top of the $30 million he invested the previous November, bringing his total investment into the coin to a whopping $75 million. But Justin's son is no regular investor.
▶ 1:10:47He was sued by the SEC under the Biden administration for selling unregistered crypto assets, fraudulently manipulating the markets for his own gain, and paying celebrities to promote his illegally inflated crypto coins without disclosing their payments. Just about a month after Mr. Sun's January announcement that he would be pouring even more funds into World Liberty, Trump's SEC paused the case against him. Still, Mr.
▶ 1:11:16son has maintained that his investment was merely an indication of support for Trump and his family's excellent project. So, Mr. Freyer, do you think Mr. Sun's investment in World Liberty is actually a vote of confidence for Trump's excellent product? Or how concerned should we be about the safety of the crypto market when Trump's World Liberty opens the doors for bad actors to buy their way into the president's good graces?
▶ 1:11:44Uh, I mean, I think it's just one of many transactions that demonstrates that there's a pay-to-play game with regard to crypto enforcement in this country. Um, in President Trump's first term, he said Bitcoin was a scam. He appointed Jay Clayton, who was a tough regulator on crypto, just like Gary was. Uh, and after he started, uh, a crypto company, he changed his tune and all that. So, um, his business associates, uh, we just learned a couple weeks ago that Binance helped him create the World Liberty Financials stable coin. Um, they get special treatment.
▶ 1:12:11uh he did a $2 billion transaction with the uh national security advisers uh of the UAE's uh VC firm uh and they bought $2 billion of Trump's stable coin in order to invest it in Binance. There's no reason to do that kind of transaction unless you want to buy influence with the president.
▶ 1:12:29Thank you for that. And and I want to again follow the money. In February of this year, Eric Trump tweeted that it was a great time for people to add the cryptocurrency Ether to their wallets. He added, "You can thank me later, but then deleted it." Just one month later, Donald Trump announced the creation of the US crypto strategic reserve, an official federal stockpile of digital assets for the US government to purchase and hold.
▶ 1:12:56The president proudly proclaimed that Ether would be at the very heart of this reserve. So, it's no surprise that directly after this announcement, Ether's price skyrocketed by 13%. But guess who else benefited from Trump's Ether announcement? To no one's surprise, it was Trump and his family.
▶ 1:13:17That's because over the months preceding the stockpile announcement, his World Liberty Financial had invested nearly a quarter of a billion dollars into Ether. So on the day of the announcement, World Liberty's ether stash was boosted by $33 It is perfectly clear that Donald Trump is manipulating US policy to line his own pockets. So Mr.
▶ 1:13:42Freyer, what risks do these flagrant conflicts of interest po pose to the cryptocurrency market and the American consumers who participate in it? Well, first of all, if I were in the crypto industry running a company, um I would be shouting about making sure the president wasn't manipulating the markets and making them look quite bad. Honestly, I think um there was a a Pew poll uh in the the end of last year.
▶ 1:14:07It said 61 or sorry, 63% of Americans don't trust crypto and 81% of Americans with who have experience with crypto don't trust crypto. So I think when you have this issue where clearly an elected official is manipulating the markets and benefiting from that uh it it has to create a lack of confidence uh in in that industry. Uh and so I I think it's really harmful.
▶ 1:14:30Yeah. Um now President Biden established the National Cryptocurrency Enforcement Team within the Justice Department, but Trump just uh disbanded this task force. What is the uh what why is it important to have these kind of checks? Uh it's important because uh people use financial instruments all the time to influence the government and so you want to sort that kind of thing out.
▶ 1:14:51uh we have anti-bribery laws uh that need to be enforced and in fact the SEC had a large team working on crypto uh asset uh laws uh in enforcement and that team uh has been renamed and essentially reassigned and and the top litigator on crypto issues was reassigned to the IT department to work on computers as a political punishment for having done his job.
▶ 1:15:15So taking away this enforcement is really damaging uh to not just the crypto markets but to compliance in all of the markets.
▶ 1:15:26Thank you. I yield back.
▶ 1:15:28Thank you, Miss Chu. Um to my monster drinking friend.
▶ 1:15:34Thank you, Chairman.
▶ 1:15:35That's this stuff's hor Why can't you just do coffee like that?
▶ 1:15:38By the way, it's not carbonated and I don't think Secretary Kennedy would approve, but you know, a United States Marine, we live off this. uh and in Congress it's goes.
▶ 1:15:46Thank you, Mr. Chairman, and thank you to our witnesses for your time and testimony here today. I'm pleased that this committee is addressing the very important issue of digital asset tax policy and what we need to do to make it America the crypto capital of the world. In recent years, Congress has made meaningful progress on market structure and stable coin legislation.
▶ 1:16:05Bills like the Genius Act and the Digital Asset Market Clarity Act will help clearly define the roles of the SEC and CFTC establish rules for digital asset trading platforms, protect consumers, and promote blockchain innovation right here within the United States. However, the tax code is seriously lagged behind. Our laws were written for the traditional analog economy. It's time to bring them into the digital era. That's why I'm proud to be leading efforts on a comprehensive tax framework for digital assets.
▶ 1:16:35One that will provide a long overdue clarity for consumers, innovators, and investors alike. In the coming weeks, I plan to release draft legislative texts developed in collaboration with my colleagues and stakeholders across the ecosystem.
▶ 1:16:50I hope this legislation will ease the reporting burden for dimminimous transactions, modernize wash sale rules and marktomarket elections for traders and institutions, provide clear guidance on staking, mining and income recognition, and improve the treatment of charitable contributions, lending, and qualified retirement plans. In short, we need parity and clarity. We need a tax code that keeps up with innovation and not one that chases it overseas.
▶ 1:17:16Providing the certainty won't just improve compliance, it will unlock investment, create jobs, and expand access to next generation financial infrastructure. We must get this right, not only for innovation's sake, but for the American leadership in financial technology. I call on my colleagues on this committee to join me in this effort on behalf of the millions of Americans investing in these assets of tomorrow.
▶ 1:17:41Miss Maniierro, we've seen cryptoreated job postings increase by over 100% year-over-year with projections showing continued acceleration through 2025. In your view, how would implementing a comprehensive tax framework impact hiring, capital formation, and long-term domestic investment within this space? Would certainty around issues like staking, mark, and dimminimous thresholds help drive growth? Thanks for the question, Congressman, and thanks for your leadership in this space.
▶ 1:18:10What I would say is particularly focused on the staking issue. Staking is a homegrown American industry. Um, Bison Trails, which was one of the first staking as a service providers, headquartered in New York City, eventually acquired by Coinbase, became Coinbase Cloud, now runs the enterprise staking infrastructure that powers a lot of this um industry. Um, has created hundreds of jobs. blockchain and another company in this space, US-based company, unicorn status, $3.25 billion. Um, all of the job growth created with that.
▶ 1:18:40So, I think what we're seeing is, especially with regard to the staking industry, um, this is an industry that was born here, as I said previously in my remarks when I first started working on this in 2019, $50 million today, $660 billion industry. Um, I think you can see how important it is for us to keep that here in the US. Yeah, I could not I could not agree more with what you had just said and thank you uh for that, Miss Riley.
▶ 1:19:04Legislative activity across several committees from market structure and financial services to stable coins and banking has been strong. Tax policy is the through line connecting it all. Can you speak to how updated tax guidance would complement or even accelerate progress on market structure, consumer protection, and custody of frameworks across Congress? And if I may, what is the cost of continued inaction on the tax side? Uh thank you congressman for the question.
▶ 1:19:33Um I think that's a great point that um as other um you know regulatory efforts are moving forward without having a tax code that keeps up it could hinder um the adoption and success of the these efforts. I think a good example is in the context of stablecoin.
▶ 1:19:52there is still um some work to be done in terms of broker reporting especially if you're imagining the use case of stable coins being used as payment stable coins um if you want there to be widespread adoption there needs to be complimentary um tax code um revisions as well and I think tax certainty is an important part of market adoption um taxpayers uh when they lack confidence it's difficult to develop new products to innovate um and I think I it could be
▶ 1:20:22a real hindrance um as we move forward in these other efforts if the code does not keep up.
▶ 1:20:28Thank you for that. Uh thank you, Mr. Chairman, and thank you to our witnesses. I yield back.
▶ 1:20:35Thank you, Mr. Chairman. Um thanks to all of our witnesses for being here. Um we appreciate it. Um I think it's critically important that we work to modernize infrastructure and that includes our financial infrastructure. Um, and crypto, blockchain, digital assets are part of that. Innovations can lower fees and transaction times, increase consumers financial privacy and security, and help unbanked communities.
▶ 1:21:00But right now, the crypto industry is facing a crisis of confidence, trust issue with the American people. Um, and I hope this panel can provide some answers so folks can gain back that trust. Three days before taking office, President Trump released a memecoin to the public and promoted a private dinner for the top 220 coin holders and a special VIP White House uh tour for the top 25. That's corruption.
▶ 1:21:27The president is opening the White House up for business and selling the fate of the American people to the highest bidder. We also know one of the top buyers of the coin was a Chinese China linked firm called the GD Culture Group. Despite reporting zero revenue in 2024, this company somehow managed to purchase hundreds of millions of dollars of Trump's memecoin using proceeds from a quote a stock sale to an unnamed entity in the British Virgin Islands," unquote.
▶ 1:21:58that's not putting America first. Um, I worry that this conflict of interest will harm our national security, but again, um, how can people have trust? Since taking office, the president has netted over 350 million through the token sales and fees. At the same time, it's cost more than 800,000 people over $2 billion. This behavior understandably erodess people's trust in the industry.
▶ 1:22:25This week, there were supposed to be multi Well, this week we'll look at multiple crypto bills coming to the floor. Um, and I think it's important that we have the necessary regulatory safeguards and robust resources to protect consumers from fraud. So, Mr. Fraer, do any of the provisions as we look at the bills coming forward uh criminalize future presidents who use cryptocurrency to engage in influence pedalling or perpetuate cryptoreated scams?
▶ 1:22:54There are no provisions like that that I know of. Um, these bills significantly expand the role of the CFTC in supervising digital assets. Um, do either the Clarity Act or the Genius Act provide additional resources to the CFTC so it can fulfill its new role to supervise this market and enforce new
▶ 1:23:15Absolutely not. And neither regulator is well funded enough to do this job. Uh and in your testimony you talk about the need for technology neutral regulations to ensure federal regulators cannot pick winners and losers or accidentally create confusion and price dislocations in the marketplace. Could you provide more details about why it's important that Congress regulate the crypto industry using technology neutral language and the dangers if we fail to do so?
▶ 1:23:44Uh first of all uh the reason you use technology neutral analysis is just out of fairness. Uh you want technology to win on its merits not out of any favors uh through regulation or policy. Um the second reason is uh like you said you don't want them picking winners and losers. They don't know the future. Uh and so you you want to make sure you're making policy that is durable through other kinds of new technology. Uh you know digital assets came very quickly. Who knows that there might be another development really soon.
▶ 1:24:14Uh that makes it important that we sort of include that kind of regulation uh to cover whatever this new technology is. Uh if we tailor this all to uh crypto assets in this particular technology, we're we're going to miss out on that opportunity to get it right. And I think um obviously we're working with anything new and as we have new innovation in all sorts of sectors, we see changes.
▶ 1:24:38We need to put policy in place, but we need to keep policy up to date based on what we learn, which is also critically important. And that means making sure that we have robust funding um and the resources to protect consumers. And given what we've seen happen to federal agencies, we can talk about the bills and what the language right language is in the bills, which is very very important.
▶ 1:25:02But it's also important that we have uh folks who are able to make sure that those rules are being followed. Um without resources, uh whatever we put in the bill may not matter if we aren't making sure that those rules are being followed and make sure that we have robust consumer protections. Is that correct?
▶ 1:25:20That's absolutely right.
▶ 1:25:21No. Thank you so much. I yield back, Mr.
▶ 1:25:26Thank you very much, Mr. Chairman, and thank you to our witnesses who are here today. Digital assets are transforming the way Americans invest. They trans uh transact and think about money. Today, more than 50 million Americans hold some form of cryptocurrency, making the United States one of the largest digital asset markets in the world by both user base and investment size. And nowhere is that momentum more apparent than in Texas.
▶ 1:25:49Our state has quickly become a hub for digital asset innovation, attracting investment, talent, and cutting edge technologies from across the country. And despite this remarkable growth, the Internal Revenue Code still lacks a clear and comprehensive framework for how we tax digital assets. And as a result, consumers, innovators, and investors are left navigating a patchwork of rules that don't really reflect the realities of these emerging technologies.
▶ 1:26:15So from the taxation of mining and stalking to reporting requirements, fundamental questions remain unanswered about the character, the source, and the timing. Uh digital assets are more than just speculative investments. They're used as payment methods, as access tools for new online uh services, and as vehicles for exchange that bypass traditional For many, this technology offers a new way to store value, preserve privacy, and participate in a decentralized financial system, one not reliant on
▶ 1:26:46large institutions or central governments. So with all this in mind, unless Congress provides clarity in the tax code, we risk pushing this entire ecosystem overseas. So countries like Switzerland and Singapore are already establishing themselves as digital friendly uh jurisdictions and if we fail to act we hand them our future of financial innovation.
▶ 1:27:10So President Trump has made it very clear that America must lead in this space and advancing a smart modern tax framework is a critical step to realizing the vision in keeping the digital asset economy and the jobs that it creates here at home. So this committee just delivered a resounding win for the American consumer, for the worker, and for businesses through this one big beautiful bill. But our work that is reigniting the engine of the American economy is not yet over.
▶ 1:27:38Miss Mercinger, can you please speak to the potential risks if Congress is not able to provide a comprehensive tax frame framework for the treatment of digital assets? Thank you for that question and you hit on one of the main risks which is losing um the jobs and capital and innovation um to jurisdictions overseas. I think the other concern here is that we risk um a slow adoption of digital assets here in the US.
▶ 1:28:07If you think about the um need for a dimminimous exemption um using if every transaction in digital assets is taxed, it's it's going to be really difficult for that consumer, that individual to use cryptocurrency as a medium for everyday um economic activity. I think you also are going you're going to burden the taxpayer with these unworkable um compliance uh requirements. And so it really is there's a number of risks involved.
▶ 1:28:38And so we have to bring the t we have to modernize the tax code so that we have some fairness so that we're lowering the burdens and we can allow the US to be the crypto capital of the world.
▶ 1:28:51I appreciate that answer, Miss Riley. The SEC recently approved exchange traded products or ETPs for digital assets such as Bitcoin um and Ethereum and is currently considering expanding that approval to allow for staking of digital assets that use a proof of stake consensus mechanism. Um what is the current tax treatment of ETPs ETPs and why do staking and similar activities present challenges under the existing
▶ 1:29:16Um thank you for the question Congresswoman. Um I I do just want to highlight that ETPs um essentially democratize the availability of digital assets. This is how many retail investors can access them. Most of them are structured either as grant or trusts which um is a you know tax construct or partnerships.
▶ 1:29:34Um, granter trusts allow the tax treatment to be consistent as as though the holder um holds the digital assets directly um which provides simplification and efficiency for those individuals but without needing the knowhow to set up their own wallet. They can access this through traditional brokerage. Um they can hold this in their IRA. Um so it provides simplicity there while giving them the same consistent tax treatment um as holding it directly.
▶ 1:30:04the granter trust rules are are old. They well predate um you know the the onset of digital assets and they don't contemplate um something as novel as staking and um many in the industry are working to try and get comfortable in an area that you know legislative clarity um could provide um you know consistency in the market. Um, oh, I realize I'm at time.
▶ 1:30:31Um, but just, you know, to to wrap up that it, um, it also is in the spirit of the granter trust rules as well. Um, thank you.
▶ 1:30:40Thank you. I'm out of time, too. So,
▶ 1:30:43thank you very much, Mr. Chairman.
▶ 1:30:45Uh, thank you very much, Mr. Chairman, and to each of our witnesses. Uh, I certainly have, uh, a number of neighbors in Austin that are interested in crypto and its future. Uh, I'll have to say if crypto has a big future, uh, President Trump is certainly giving it a bad name with uh, the way he has used his office to enrich himself and his family by billions of dollars. Uh, one of the concerns that I've always had when I hear about uh, new tax changes that must occur.
▶ 1:31:14And like the Genius Act, our uh, our Republican colleagues are masters at naming bills. It's just what's inside them that creates a problem. Uh and that's been true of their big beautiful bill and I think it is also true Mr.
▶ 1:31:27Frier about a piece of legislation just introduced last week called the cons dealing with staking the proof of stake uh and New York University's tax law center uh an independent uh group has said that this amounts to a tax subsidy for digital assets. Uh can you comment about that?
▶ 1:31:47And generally this idea that we need to do we need some new special preferential tax treatment, some new loophole that the loophole masters over here are great at creating uh specifically for some parts of digital assets.
▶ 1:32:02Yeah, absolutely. So one myth I want to dispel that staking is done by, you know, small people out of the garage. Uh to stake ETH, for example, uh you need more than $60,000 worth of ETH uh in order to run your own validator. So what this is is is large companies who run these validators and are generally the people we're talking about when we talk about taxation. Uh the other uh space for staking is staking as a service where people combine all of their assets uh and uh uh stake that way.
▶ 1:32:29Someone offers that service and then distributes those uh gains. Uh and and we have you know that that's a pretty regular securities arrangement and we have rules for that. Um, the other thing I'd like to mention really briefly is that um, stakers and miners uh, in Texas when they run up uh, those those mining machines, prices for energy uh, in Texas go up for regular consumers. So, you're paying for crypto whether you like it or not. That's not great consumer choice.
▶ 1:32:56Uh, and as far as investors uh, who put their money in crypto funds that aren't registered with the SEC, uh, isn't it true that that investors today can put their money into crypto funds that are registered with the SEC that are fully compliant with SEC regulations without our having to change any law.
▶ 1:33:15Not only can they do that, there are many companies uh, that offer products on the blockchain with full compliance with the securities laws.
▶ 1:33:22And Mr. Mr. Chairman, I would ask unanimous consent to add into our record uh a letter from the Independent Bankers Association of Texas, expressing concern and great opposition uh to the what they call the Race to the Bottom Provisions of the Genius Act, section 16D, which among other things they say will really interfere with state authority over banking. Uh let me add that to the record at this time with your consent.
▶ 1:33:52Mr. Chairman.
▶ 1:33:55Yeah. Just asking unanimous consent to add that into the record. Okay. Thank you. Uh and let's go back then uh to some of what Miss Del Benny referred to uh with reference to the corruption associated uh with this. You end your written testimony by saying crisis are avoidable.
▶ 1:34:14Uh and my question to you centers on whether we aren't risking uh because of the way the president has operated uh and uh the legislation that's being advanced another crisis of the type that we had in um back about 15 years ago uh where we not only have great loss that affects the rest of our economy uh but uh we will be seeing that the taxpayers are once again asked to bail out wealthy investors ers.
▶ 1:34:45Uh great question. Uh one thing I want to say is that uh crypto is a very small part of our our markets. It's $120 trillion securities markets. Uh cryptos, you know, about 3% of that if you count the commodities, which is 3 trillion uh of the crypto assets. Uh, and American leadership in the financial markets is not going to survive if we bend the rules and put at risk that $120 trillion leadership that that dollar dominance because everybody trusts our markets.
▶ 1:35:15If we bend that uh to allow crypto to have special favors and put the rest of the market at risk. how would adopting special exemptions for crypto uh benefit uh President Trump and his family?
▶ 1:35:33As an owner of crypto companies, uh he is supposed to be bound by those laws. If he weakens those laws, if he chooses regulators that don't enforce the laws, then he can make money doing illicit activity and being uh influenced by foreign governments and no one's going to be able to keep track of it.
▶ 1:35:48And we know, as was pointed out earlier, that the SEC just happened to drop uh its investigation of a Chinese businessman who' invested $75 million uh and has uh apparently also dropped its lawsuit against Bonance and its founder CZ CZ. Uh isn't that correct?
▶ 1:36:09That is correct.
▶ 1:36:10All this happening just about the time that they're doing things uh to help the Trump family,
▶ 1:36:16direct business partnerships. Thank you very much.
▶ 1:36:20Thank you, Mr. Dogget. Um, as committee practice, we're going to go to two to one just to balance things up. Mr. Be,
▶ 1:36:26there's one for the committee me. Thank you very much, Mr. Chairman. Good morning to you and good morning Ways and Means Committee. Happy Crypto Week. We're glad to have you here, panelists. You'll always get to say that time I testified uh before Congress. I'm a Doge guy. Not so much the coin, but the mission to eliminate waste, fraud, and abuse. I read last night something that jumped out at me. It's the way we're going to be handling sales of uh of crypto.
▶ 1:36:52And uh starting this year, taxpayers involved in the sale of qualifying stable coins or spec specified non-f fungeible tokens will be required to complete a 1099DA form. Uh putting crypto exchanges under the microscope like never before. And here's where it gets dicey for uh for the government to regulate this market.
▶ 1:37:13This reporting requirement is estimated to in is estimated to result in the processing of 8 billion new uh 1099 tax forms each year, requiring the IRS to uh use 4 billion hours of labor to process the form. Uh estimates range as high as 250 billion to uh regulate the this new uh sector. Miss Mercinger, is that the best way to go forward?
▶ 1:37:43Is that uh efficient? What say you, Miss Mercinger?
▶ 1:37:48Thank you for the question. It's not the most efficient way to go forward. It is a burden on the um consumer. It's going to be a burden on the IRS and for every dollar spent on tax compliance, that's one less dollar that can be invested in the company. And
▶ 1:38:05so you say it's not the best way. What best way is there? What's a better way to go forward? For example, we could have a dimminimous exemption um fi a set amount where if your transaction transaction is under that amount, then you do not need to have a 1099 and report it. Um that exists in other areas of the tax code and it certainly would be helpful here.
▶ 1:38:27104 Miss Riley, is she correct? Miss Mercinger just gave us that answer. What would you would you agree or disagree?
▶ 1:38:35I think um that a dimminimous exemption um thank you for the question. um Congressman that does um address some of the issue, but with stable coins um in general, I think there's a question about whether it should be maybe carved out from um broker reporting entirely regardless of how much is in the transaction given that the potential for um gain or loss is minimal. And so the benefit of this reporting
▶ 1:39:00would say yes, you say yes. She nailed it. Oh yeah. Uh Miss Bangiro is nodding. She says uh yes, too. Mr. Summonsado uh you talked about buying a cup of coffee with Bitcoin or something and the nightmare of uh recording the transaction. Should there be a dimminimous for transactions? Would you agree with that?
▶ 1:39:18Yes. And Coin Center has long advocated for that and worked with some members.
▶ 1:39:21What should it be? What's the number?
▶ 1:39:24Well, I mean again as we said earlier like I don't think cryptocurrency deserves some special treatment for uh you know under the tax code. And so looking to comparable exemptions makes sense. The foreign currency transaction I believe is $200. I've seen proposals that have it slightly higher tagged to inflation. That makes sense.
▶ 1:39:42104. Uh Miss Maner, you gave a great example of how the United States really got got lost in the chips uh computer chips market. And uh you've given uh the warning I guess that we're falling behind. And I looked it up and sure enough uh the largest crypto exchange is located outside the United States. 3/4 of all cryptocurrencies are off the United States. Should we be worried that we're falling behind?
▶ 1:40:08We should both be worried that we're falling behind, but also cognizant of the fact that these other jurisdictions are now looking at us to see what we're going to do next. So, I think we have a small window here where it's incredibly important for us to get this right
▶ 1:40:21is there a country that we should emulate or is it United States has to flex and go our own way?
▶ 1:40:27I think that we can learn things from the other uh regulators that are moving in these places. What I would want to say, and it's been said before, we want to make sure that we don't have rules that are too prescriptive that lock us into the technology in this place in time. So, I would say principles-based, forward-looking, and like the UK, we should aim to move quickly.
▶ 1:40:45Very good. What should What's the big trap? What's the thing that we should be I mean, it's uh it's a totally new market. What should we be worried about? What's our biggest what should be our biggest fear? What's your biggest fear about uh about venturing out? What keeps me up at night would be to lose the leadership in this space because I know this technology has such potential.
▶ 1:41:08And so I think again we're at a critical moment and while folks are very rightly focused on the regulatory side, a workable tax framework is what's really going to make the difference and ensure that we can keep this industry here.
▶ 1:41:19Thank you very much. Panelists, thank you so much. Mr. Chairman, yield back.
▶ 1:41:23Thank you, Mr. Bean. Min.
▶ 1:41:26Thank you, Mr. chairman and thank you to the our witnesses here today to talk about this very very important uh topic about our digital assets and the importance really of bringing clarity to this industry. While the digital asset industry has grown substantially over this past decade, much of the industry is unexplored by many parts of our nation for various reasons as you guys know.
▶ 1:41:46Although many have begun to embrace the new technology, it is critical in my mind that we work to break the barriers uh that are here in Congress and the uncertainty that's out in the industry to make it more accessible and frankly again to bring certainty to the industry with respect to taxation laws as it relates to our subcommittee responsibilities. Two ways I think we can improve accessibility is to bring that predictability to the market and do a better job really of explaining just how broad the use cases are for technologies uh so that folks do not fear it.
▶ 1:42:16I want to focus on uh the idea of staking today. Those were going to be my questions. It's been brought up a couple of times here. I think congressional action is needed to increase clarity for the taxpayer out there. Staking allows users, as you guys have described, to hold and preserve those assets for a certain period of time, in a designated wallet in an effort to earn rewards and validate transaction. It's a vast and growing segment of the digital economy in a win-win method of participating in the digital currency for users.
▶ 1:42:45And frankly, it keeps out fraudulent users, as many of you have said. Miss Riley, you said in your opening statement, quote, "Despite the importance of staking, the code has not been updated to address staking and an existing subre regulatory guidance is insufficient to address all the important tax issues implicated by staking." Uh, Miss Manero, by your testimony, I take it you agree with that. Is that true?
▶ 1:43:10That's true.
▶ 1:43:11How should staking activity be addressed in the tax code in your opinion? And Miss M. Riley, I'll come to you for that question. Uh, thank you for the question, Congressman. I think the biggest issue is sourcing at this time, particularly if we're looking to keep um more business on shore. As of right now, there's no guidance on how staking is sourced, which is requiring um you know, advisers to look at things like where are the servers, where are the people working on them. These are easily manipulatable factors.
▶ 1:43:41um by providing clarity such as sourcing to the recipient, it would put US staking providers on the same level as non- US staking providers in that there wouldn't be any difference in in like withholding for foreign investors.
▶ 1:43:54Miss Mayerro, aside from uh the idea of sourcing, the idea of timing seems also to be very important too. When should uh staking activities be taxed? Should they be taxed as Mr. s said about the analogy of growing crops as a farmer does or when it's sold at the end of the of the Uh thank you. I would agree with what Mr. Smanado said. I think that these uh staking rewards should be taxed at the time of sale or disposition, not at the time of creation.
▶ 1:44:24People have used crops as an example. Sometimes I use other ones like when you uh write a book, you're not taxed when you finish it, right? You're taxed when you sell it. When you bake a loaf of bread, you're not taxed when it comes out of the oven. your tax when you sell it. Um, same idea here. We want this to be subject to the same tax treatment as all newly created
▶ 1:44:41And as I understand it right now, as it works, somebody put the validator puts in this stake in into a transaction and then they may get a reward at the end as they grow this this crop. But if the transaction is validated, but if it's not, they could actually lose it. They could uh they could see some of that reward slashed. I think that's the term that's used.
▶ 1:45:00And so at that point though, if they have grown it, if a transaction's been validated and they've received a stake as a result of of putting their initial uh digital asset in, they're taxed at the ordinary income at that point. And then later when they sell it, they're taxed again uh at a capital gains rate. Is that currently how that transaction is is uh formed?
▶ 1:45:20That's correct. There's a carrot and a stick, right? So when you stake your tokens, you lock them in order to validate these transactions. If you act honestly, you're rewarded with new tokens. If you validate a transaction that's inaccurate or most often this happens because validators go offline, then you're what's called slash and that uh would result in the loss of tokens. Slashing is very rare um but it does incentivize good behavior.
▶ 1:45:43So Miss Riley identified the need for us to bring clarity on sourcing. We've talked about timing. Miss Manurio, Mr. Salmanado, you mentioned also the idea of dimminimus. I want to ask in the in the area of staking, do we need a dimminimous exception or should we not even worry about that in this particular part of the digital asset world?
▶ 1:46:01Um, I think we need a dimminimous exception. I don't think it needs to be specifically applicable to staking. I think what's relevant here is that the individual users who are sending um which the stakers are validating um a lot of times you have to also pay a very small fee that can be like a fraction of a cent um and that's where I think a dimminimous exception would be extremely important because um I can just tell you from personal experience you rack up a lot of those transactions just like I said every time you send a payment you're going to be paying a small native fee to those
▶ 1:46:32stakers and and simplifying that process for the individual users is really important.
▶ 1:46:36Yeah, very complicated area here, but we've got to bring certainty so that America leads with innovation and investment. We want to be that leader. We want to see it not just go from 550 million since 2019 to 600 billion, but we want to see it grow even more. We want the transactions here domestically rather than internationally. I appreciate each one of you and your testimony today, and I yield back.
▶ 1:46:57Thank you, Mr. Moran. Um, Mr. Meyer, and you've been actually taking some classes, haven't you? Yes, but I don't do any crypto mining yet.
▶ 1:47:05Okay. But but let me know when you're there. You know, it's it's I hear it's still all the rage now.
▶ 1:47:10Well, Mr. Chairman, ranking member, thank you very much for holding this. Thank you for being here. I've I've learned a lot already and your testimonies are very helpful. Uh in May, an investment fund backed by the government Abu Dhabi made a $2 billion investment using Donald Trump's stable coin. And these $2 billion flow to Trump, his family, and their investment partners. They're free to turn around and generate interest and other revenue, making it effectively an interest free loan from a foreign government.
▶ 1:47:36In case corruption wasn't clear enough, the investment was announced by Zack Witkoff, a partner in Trump's crypto ventures and the son of Steve Witkoff, the White House's envoy to the Middle East. This is a system designed to let foreign governments funnel billions of dollars directly to the president as easily and as quickly as possible. This is corrupt. It's illegal. And Mr. Fairy, you said that crystal markets shouldn't receive special carveouts from regulations, which I agree.
▶ 1:48:02Going a step further, do you think that the Constitution's a monument clause should have an exception that lets the president accept a $2 billion gift as long as it's delivered through
▶ 1:48:12I think if the framers wanted an exception, they would have put it in
▶ 1:48:16Thank you. While hundreds of thousands of investors lost savings on his memecoin, President Trump found another way to make a quick buck. He held a pay for access dinner with the top holders of the worthless token and rad in an extra $148 million from the wouldbe guests. One of those individuals is Justin Sun, a billionaire who bought $20 million of Trump's memecoin, who had three crypto companies with fraud cases pending in front of the SEC. All dropped when the Trump administration came into office.
▶ 1:48:46The White House is quietly rewarding top investors with corrupt bargains and dropped lawsuits. Mr. Freyer, you warned about the dangers of applying regulations differently to the crypto industry than to other financial markets. Do you believe that applying the law differently to individuals depends on whether they've invested in a specific memecoin is the path to a stable and a healthy financial system?
▶ 1:49:07No, I don't think it is at all. I'd like someone to explain why investors and consumers in crypto deserve fewer protections than they do in the rest of the marketplace. That is one of the reasons why with the all the crypto bills up this week that people like uh the AJ and others are very concerned about the lack of consumer protections at the state and local level. Um only existing at the federal level with an SEC that's been gutted and an FDC that's been gutted. Donald Trump isn't always selling access, he's also selling our national security.
▶ 1:49:36The Trump administration moved quickly to loosen regulations of cryptocurrency ventures at the SEC and the Justice Department and other agencies. The president disbanded the National Cryptocurrency Enforcement Team at DOJ, which famously brought cases against North Korean hijackers and other hackers and other crypto criminals. Now malicious actors around the world don't have to worry about US investigations and enforcement, and they and anyone else can directly invest in the president via his personal cryptocurrency ventures. Mr.
▶ 1:50:06Freyer, do the loose regulations applied to crypto markets include safeguards against purchases by foreign governments, purchases by criminal enterprises, or other unscrupulous buyers?
▶ 1:50:16They don't. And it's important to remember we we have already had peer-to-peer transactions uh in the past. They were called bearer bonds, and they became so famous for moneyaundering, for tax evasion, and for bribery that they were the plot device of about 50% of the 80s movies, action movies. Uh so we've had this before. You can't have different regulation of these types of instruments.
▶ 1:50:37Mr. Fair, I introduced market structure legislation three or four years ago um on crypto and in the meantime, it means every single day I have gotten emails about people's crypto assets being stolen from wallets. the amount of hacking and theft.
▶ 1:50:55And I'd love I'd love for you to comment on on how the individual investor um with all due respect to Coinbase, which may be the the gold standard, protects themselves from having their asset
▶ 1:51:09Um I think I think that's a real challenge. I think the technology to use crypto on your own in a self-custodied wallet for just peer-to-peer transactions is really hard and really risky. And that's why most people who transact in crypto use these large platforms, large intermediaries like Coinbase and Binance to do these transactions, which is anothetical to what crypto is supposed to be for and why it's supposed to be treated The the the decentralized has become
▶ 1:51:37Uh just days before his inauguration, President Trump issued a meme coin which he told investors was worthless. I'm quoting him. He stated that the coin was quote not intended to be an investment opportunity end quote but then shockingly received $350 million in trading fees and other revenue using his official platform to inflate his personal fortune off a worthless token. It generates no benefit to the American people except for his immediate family and business partners. The American people are very concerned about elected officials self-deing.
▶ 1:52:07Do you think it's important to crack down on this kind of self-deing as is already done in the traditional financial markets? I think I think American people dislike fairness and they especially dislike uh elected officials uh profiting from their positions. It's why there was such huge uh bipartisan support for the stock act in 2012 uh to prevent trading uh from Congress members and I think people want that for the president as well
▶ 1:52:33and I'm a proud co-sponsor of that act and I yield back. I want to thank thank the chairman and thank my dear friend the ranking member. I'd also like to thank all of you for being here as witnesses today.
▶ 1:52:48Under the president's leadership, we have had an incredible opportunity this Congress to ensure that the future of cryptocurrency and decentralized finance innovation as well as wealth creation takes place here in the United States of America.
▶ 1:53:08The first step in this process was overturning the DeFi broker rule, which would have fundamentally changed the business models of America's self-custodial wallet and software providers while overwhelming the IRS. Overwhelming the IRS with billions of new information returns and infringing on the privacy of tens of millions of Americans.
▶ 1:53:37Now, we didn't we had the vote out of this committee. Didn't have a lot of my friends on the other side on the committee when we voted it out, but we were able to get over 72 Democrats to support us on the floor. And I was proud to lead that legislation. And it is fitting that the Ways and Means Committee produced the first piece of cryptocurrency related legislation ever to be signed by a president of the United States.
▶ 1:54:03Now the rationale behind the repeal of the broker rule was that there was significant differences between decentralized exchanges and centralized exchanges and how they should in fact be treated. Uh Mr. summit title.
▶ 1:54:22Um, can you please describe the differences between the decentralized and I I think this is important for people that are actually logging in and listening between the decentralized and the centralized exchanges and why the differences are important to consider when making policies decision in this Yeah, thanks for the question and uh we greatly appreciate your leadership on the the broker rule repeal
▶ 1:54:52and on the 6050i issue. Um as has been discussed, right, there are um intermediaries in this industry who look and act a lot like traditional financial intermediaries who take custody of customers assets um and route transactions on their behalf.
▶ 1:55:11Um, but the kind of novel and unique element of the cryptocurrency concept and as it's been adopted by this industry is the ability to write and deploy code that allows for a wide variety of forms of peer-to-peer transaction. Um, one particularly popular area has been the development of uh code on blockchains that allows for transactions to occur in a peer-to-peer fashion to exchange assets.
▶ 1:55:39And the broker rule as it was introduced would have blurred the lines between those two types of activity. One is software supported peer-to-peer types of transactions. The other traditional financial institution type intermediary action and it is a difficult issue somewhere in some ways to draw that line and requires a lot of education because of the novel way that these networks have worked. Um but really encouraged both by your leadership and by others in the house in terms of trying to get that distinction correct.
▶ 1:56:08And I and I want to thank you for that. Lastly, I I think it is important to highlight the job creation that is stemming from the growth in the digital asset sector. I mean, I I don't think there's any mistake about that. Data actually suggests that Bitcoin mining, just one component of the digital asset industry, has generated over 31,000 jobs and contributed 4.1 billion annually to the US economy.
▶ 1:56:38The projected total revenue related to digital asset expect is expected to reach over 16.1 billion by the end of Um, Miss Mercinger, uh, can you speak briefly and you only have 48 seconds, uh, the benefits in embracing the digital asset industry could have on the job market here in this country?
▶ 1:57:02Thank you for that question and this is a a great question for me to highlight that uh we at the blockchain association we have over 130 members who are always creating new jobs. In fact, we have a member job board that has well over 2,000 jobs and is growing every day. So that's just an example of the level of of growth in this industry and what having clear rules of the road, whether it's in tax or for regulation, can help continue to grow and and invest in that
▶ 1:57:33Well, listen, I I want to thank you again for all of you uh for being here today and again thank the ranking member and and thank the chairman. And with that, I would yield back.
▶ 1:57:43Thank you, sir. And I think am I going Mr. Horford? Thank you, Chair Swikert, and to the ranking member Miss Sul for starting this important discussion today. As many of my colleagues know, I have long supported the adoption of cryptocurrencies and blockchain technologies since my time here in Congress. Why? Because these are tools that can help enable financial inclusion and equity.
▶ 1:58:11Uh, in Nevada, over 6% of the residents have no bank account. In the United States, 5.6 million households have no checking or savings accounts. Without bank accounts, it's nearly impossible for individuals to save money securely, let alone invest, leaving them vulnerable in emergencies.
▶ 1:58:34That's why it's important that when we see these new opportunities like crypto that we push for full financial inclusion as with any emerging industry. Congress has a duty though to evaluate what truly serves the public, not just what boost big portfolios or billionaires. So let's be clear, the status quo isn't stopping Donald Trump or other scammers.
▶ 1:59:01We must have regulatory frameworks that allow for safe experimentation while keeping bad actors and scammers out. This week is a good start with the crypto bills that are on the House floor, but true policym means that this is only the start. Greater access to these technologies must be balanced with sufficient standards, guard rails, and protections to allow for responsible scaling, growth, and opportunities.
▶ 1:59:31That's why I'm urging my colleagues to work with all of us here. Uh I plan to lead an effort to address the taxation of cryptocurrencies and I urge my Republican friends to join me. The American people need to know that we are united to make sure that we get these policies right. We've already seen what happens with partisan only approaches.
▶ 1:59:55Miss Mercener, in your testimony, you noted that the gaps in our tax framework forces innovators to make difficult choices on ambiguous interpretations of the law. Can you give us an example of one of these issues innovators face, Thank you for that question and I I think staking is a good place to look at one of those areas where um because of the way that tax treats the the staking of um
▶ 2:00:25assets because it's it's taxed at that moment um you have innovators who may hold off and not participate because they don't have the funds to pay for those taxes upfront. So it it does keep people out of uh certain functions if they have to pay a tax at the moment of creation versus um at disposition of the assets when they would have the funds to pay those those taxes.
▶ 2:00:53And what are the risk of inconsistent state level tax treatment of crypto and how can federal guidance help harmonize those approaches?
▶ 2:01:02Yeah, absolutely. Um, anytime you have a patchwork of regulation, it just means there's more compliance costs for these businesses and for every dollar that they spend on compliance, that's one less dollar that they're putting back in the business. So, this is a it's a great example of why we need a kind of it's a three-legged stool. We need um federal regulation, market structure framework.
▶ 2:01:25We need stable coin legislation, but we also need clarity in the tax treatment of digital assets and to ensure that America is the place for um cryptocurrency and this industry to
▶ 2:01:39What are the benefits for both taxpayers and the IRS of treating mining and staking rewards as property capital assets rather than immediate income? So kind of to that back to that having the funds to pay the taxes up front when you've created something you haven't yet disposed of it so you don't have those funds um to pay the taxes uh the IRS because of the way this is also um the way you track it you have to know
▶ 2:02:10the minute the moment of of the the stake and the and the mining and that gets to be very burdensome to track that information and you know the IRS then has to you know they have to keep track of that as well.
▶ 2:02:24So it's a burden um this is a these these things happen regularly um to so to have that level of disclosure and the need of that information and data to the IRS um definitely will overwhelm the system and at the end of the day we just need some fairness in the in the tax code. we need to modernize it to make sure that we are the that the digital asset um framework and regulations are built on American
▶ 2:02:54Thank you. Well, I hope that uh I can have my colleagues on both sides of the aisle work with us because without clear tax rules, digital asset users face complex regulations and burdensome IRS reporting, we should all agree that we can work together to streamline that. I will yield back. Thank you. Okay. Thank you, Mr. Chairman, and Madame Ranking member. Thank you so much for holding this hearing. Thank you to the witnesses uh for being here today.
▶ 2:03:27I'm trained as an attorney and a CPA. I'm a member of Congress. I was a mayor. I was a county executive. And I have a hard time understanding crypto. And I think that most Americans are in a in a similar place. I know that it's a new and important industry that's growing all over the world and we don't want to lose the advantage here in the United States of America. I'm concerned about uh uh an underground economy and not tracking things properly.
▶ 2:03:55I'm concerned about uh giving benefits to this industry that are not enjoyed in other industries. I'm concerned about the idea of uh creating this massive amounts of wealth when sometimes there's really nothing there. There's no there there but we're creating this enormous wealth.
▶ 2:04:14And I'm concerned about dimminimus only because it triggers with me what happened with dimminimus when we think of tariffs that we let people not uh pay taxes on goods under $800 when imported from a foreign country and people drove a a truck through that loophole and they abused the system. And I can see people, you know, and I you you know better than I would know.
▶ 2:04:37I really don't understand if people would use the $300 dimminimous idea and then try and make a business out of that and just say, "Let's do a lot of transactions that are under $300 and make a little bit on each one, but let's do lots of them." So, I want to promote this industry. I don't want America to lose the advantage in it, but I have those concerns that exist and I really don't understand it well enough and I don't think the American people understand it. So, I'm gonna ask I've got three minutes left. I'm gonna ask Mr.
▶ 2:05:05for Freyer to go first and then I'm going to ask each of you if you want to just tell me what is it we really have to be watching out for to be really careful of but you got to try and go
▶ 2:05:15Sure. So I think what we need to watch out for is desperate treatment of these assets versus the rest of the industry. I think if you get that right if you bring them up to the same standard then we won't have this issue where for example we already have crypto companies out there issuing uh cryptocurrency that looks exactly like stock. It tracks a stock price, but it doesn't get treated as a security and it wouldn't be under a security under the Clarity Act.
▶ 2:05:40If you create that kind of loophole, like you've said, money is going to flow through it, and we will see not just crypto, but the regular financial industry slide through that loophole so it gets better treatment under the securities laws or the tax laws or the commodities laws.
▶ 2:05:52Okay, good. Mr. Sansado, what are you concerned about that we really have to be careful not to let it get abused?
▶ 2:05:58Yeah. Um well I think from our perspective we're always looking out for the individuals uh who want to use these networks and the developers who help create them and that's real really where the innovation and the promise of this industry comes and so I think your concerns are right to like not ensure that some of these uh exemptions for example with dimminimus get abused by businesses to run it through I think that can be done with good policym but I I think it's really important to focus on kind of the individual users and the the developers behind these networks
▶ 2:06:26ms manerio manro Yes, thanks Congressman. I would say that you know 65 million Americans now hold cryptocurrencies and I think like you though they may understand the technology they have very little understanding of the tax framework and how it applies. So what we really need is technology neutral application of these longstanding tax principles and a clear framework that everyday Americans can work with.
▶ 2:06:49Miss Riley, nice to see you.
▶ 2:06:51Yep. Nice to see you. Uh thank you Congressman. I think carefully looking at the various use cases of the digital assets to reiterate something Mr. Um Frraer said just is if it's an investment asset make it consistent with the way investment assets are taxed under the code. If it's being used um such as a payment stable coin perhaps that requires um looking at it differently and like how are similar assets treated.
▶ 2:07:14How would we distinguish an investment asset versus what you're just using for transactions? Um well I think thing like for example if you're holding something as an investment such as through an exchange traded product you're holding it long term that is that is different and that that's what's really challenging with digital assets. You can't pay for a cup of coffee with a security. Um but so it need there needs to be careful cons consideration about how it's being used in the hands of a given taxpayer.
▶ 2:07:39And I I do recognize that presents major challenges when you're um developing legislation but I think that's a key point. Miss Mercinger, are you
▶ 2:07:48My what concerns me is that every dollar spent on tax compliant, every dollar spent on um CPAs, on lawyers to um comply with the current tax code is one less dollar that is spent on these small businesses growing and innovating.
▶ 2:08:02And those 2,000 plus jobs I mentioned on our our um job board with our members, those either go away because that money is spent on compliance or they go to another jurisdiction where there's more certainty and more clarity in the rules, regulations, and application of of the tax laws.
▶ 2:08:22Okay. I you know, I just push back on that one point at the end because you know, everybody's got to comply with securities currently and they're making a lot of money. So I mean people it's at different levels. We have to protect people obviously and we have to try and balance our desire to create this industry and to make a lot of money. We were all for making money. I'm a democratic capitalist. I'm not a democratic socialist and I'm all for that. But I want people to be protected and I'm worried about this underground economy.
▶ 2:08:50I'm worried about people scamming the system. I'm worried about people driving a truck through the loopholes that we create. So we have to try and find some balance between our desire to keep the economic engine moving but at the same time protecting people to make sure that they're not taken advantage of in this process and people are not scamming the system. But thank you all for your your testimony. If we could all work together this we could be so much better as we address this issue uh instead of everybody just fighting with each other. So thanks so
▶ 2:09:16Thank you Mrs. Swazy. Um all right now it's my turn. And one of the great things of when they let you when they're crazy enough to let you have the gavvel is I have lots of questions. So I hope you guys didn't have any lunch appointments or anything. No. Um I I I do want to actually walk through just because I want to get my head around um my concern before. This is the tax writing committee. I I there's things I like and don't like, but that's not in our jurisdiction.
▶ 2:09:46Our job right now is almost to do what Mr. Swisi just touched on and that is I how do I get my tax rules to actually be rational in something that let's be honest a year and a half from now two years from now one of your members want someone you know something you're going to read has a new innovation can we design policy so it has enough in its lack of being hyper prescriptive
▶ 2:10:18so it doesn't either create arbitrage of an innovation or impairment of future innovation. So I want to walk through a couple couple things just to make sure I get my head around because a couple of you touched some things that I understand just the basics. So let's talk about wrapping and unwrapping just just sort of that um first off um let's get our definition that that is when I take let's call it my coin and I pledge it to maybe another platform.
▶ 2:10:45Um, so most of the time when I've actually looked at this read, I need a smart contract within there. But my understanding there may be some occasions where I don't need, you know, um, the little smart contract attached. You actually touched on the wrapping and unwrapping. Um, first off, is my definition simple enough to be accurate?
▶ 2:11:06It's simple enough. It's exactly the explanation I would give as well. Is there such a thing where I could do um let's say a wrap a pledge? Um and I don't need a smart contract track tracking it.
▶ 2:11:20Uh you know I am not certain. Jason probably is the expert here and I am going to turn to him.
▶ 2:11:26Oh, it's always gets dumped on poor
▶ 2:11:28I used to work at the commission with uh Commissioner Mercinger. Um, so yeah, when you're talking about wrapping, you're usually talking about using a smart contract, which is just code that is operating on the blockchain to change, you know, literally you have the same asset. It's just kind of exactly as the term is used, wrapped in a different form so that it can interact in a different way.
▶ 2:11:49It's an asset to pledge to another platform's asset.
▶ 2:11:52It doesn't have to be necessarily to another platform actually. So like it can be just within the same like on the Ethereum platform people wrap ETH into an asset that they call wrapped ETH for use in other forms of smart contracts because that's kind of the acceptable currency even though it's at an underlying level really the same asset from an economic perspective.
▶ 2:12:12Okay. So now you took me almost exactly where I wanted to go. I one of my both my disappointments is being someone who actually had intense interest in um ledger design. You know you you have the programming background for you know if you and I went back 15 years ago.
▶ 2:12:30I had this crazy vision that identification um um documentation of certain benefits someone holds not only um lowering the cost of transactions was actually going to be much more egalitarian. was going to help the poor. It was going to help you know friction and cost of moving money and those things and I understand much of the programming talent in the world sort of went to where there was money to be made.
▶ 2:12:57Um smart contracts associated with that wrapper or unwrap um what's its tax implication?
▶ 2:13:06Um so when you talk about a that wrapper we have we have rappers. Uh an ETP is a wrap of a commodities product into a securities product. Okay. So you just look at it the exact same way.
▶ 2:13:17Okay. So so so we're comfortable that treating it as as the securities product that hey this is the pledge that that it's valued.
▶ 2:13:26It's the same concept. So I would do treat same treatment.
▶ 2:13:31I would think it's a little different right when we're talking about what is happening in a wrapped situation with a smart contract. acting. We're talking about a technical process, right? These are neutral technology tools that people can use to design a variety of different assets or use cases. With an ETP, you're talking about creating a financial product that you're trying to sell to a a user.
▶ 2:13:50Um, and so that's not to say you can't use this technology to create a financial product that you're going to sell, and that should be treated as such, but I think there's nothing inherent in the technology and how it like works that necessarily requires a particular unique treatment. Okay. So, so, so you think our current baseline would work and I'm not going to have leakage there?
▶ 2:14:11I I think that's right. I mean, I'd have to think about that and like
▶ 2:14:14I almost need a whiteboard. And I'm sorry, I don't mean to be geeking out with everyone, but that's actually part of our job is trying to figure out how freaky smart people might try to get away from the tax man.
▶ 2:14:27I think what you're trying to do is identify when the economic character of the asset has changed. Right? When we're talking about a smart contract, we're usually not talking about change or with a wrapped situation. We're usually not talking about changing its economic character. There are other interactions with a smart contract that would do that that deserve maybe a different
▶ 2:14:45Okay. If any of you ever come across an article or something exactly to that, um I I'd like to make sure because it's something we haven't really with staff and others have much of conversations of um pledges with smart contracts or vice versa. Uh is there any way to roll my basis or other things within that?
▶ 2:15:09and and and I actually have a a a little model we've been playing with with a couple of smart people that are friends of mine on how they thought they could actually roll their game um using a series of smart contracts. So, it's just it's really geeky and they're much smarter than I am. Um I How about third party pledging? So, I'm or third party staking.
▶ 2:15:31Um, anything there do you think in both what you see coming out of financial services on the definitions and how we would recognize when there's a tax strike or an obligation um both um you know I'm staking but also I'm now using you know I'm taking and pledging to a third party and and letting them hold my stake.
▶ 2:15:52Yeah, I mean I think if you're talking about the you can stake in many different ways, right? So you can stake yourself. If you're someone like me who doesn't have the technical knowledge to engage in staking, right, or the time, then I can engage a third party staking as a service provider. Some of which are custodians. Um, some of which are not. You can engage a non-custodial delegated staking as a service provider. Um, and so I'm I still have ownership of those tokens. I'm just engaging this service provider to engage in the staking. No,
▶ 2:16:20no change in who would hold the tax obligation if there was value gained.
▶ 2:16:25we're all comfortable with that one. Um look
▶ 2:16:30I think I think
▶ 2:16:31oh no go with with regard to third party staking though I think I think we should look at the arrangement here and essentially what you have is you have an aggregator of assets investing in a process so managing people's pulled assets to uh make uh a a gain and then distributing that gain uh whether that's interest from loans or the uh money gained from uh staking to uh the uh the the participants in the pool and I think the ranking member as a securities lawyer can probably sus out
▶ 2:17:02believe what that is.
▶ 2:17:03That was actually close to something she and I were discussing which apparently I had left the mic on. So
▶ 2:17:08well I I would just add though according to the May 29th guidance that the division of corporation finance put out at the SEC. They said that protocol staking and certain incillary activities necessary to do so um are not securities transactions for pulled staking that should be looked at differently. This also uh kind of relates directly to what they said about proofof work mining. So this pooling is not worrisome because it's a technical service. So all of this to say it's a complicated discussion and I'm sure we'll talk about this.
▶ 2:17:35There's and there's some weird offshoot and this isn't probably the proper place you know some fee income you know hey I I created this it's going to go out as a loan. Is there a fee not only to the loan but outside
▶ 2:17:46they take a portion of the staking rewards that are generated as a fee for the services provided.
▶ 2:17:51Okay. Um, be prepared. Um, I'm sure some of the And thank you for complimenting the staff before. I think that's something we often failed to do enough of and you being there because it's not
▶ 2:18:04my staff.
▶ 2:18:04It's not like we don't abuse them. Um, and and to my staff who's kept me hyper caffeinated, thank you once again.
▶ 2:18:12And me too.
▶ 2:18:13Yeah. Very too. Um, do be prepared. Um, over the next um, we're going to do it what over a week, two weeks of uh, two weeks. Oh, I hate it when they have to give me a script. I should have these things memorized by now. But be prepared for a number of questions that may come your way. Um, also when you get questions from us, be willing to also say, "Here's references. Here's an article.
▶ 2:18:41Here's actually someone out there that has both the securities background, the tax lawyer background. Um, I have an intense interest we get this right. Um I I look back to prior to 2008. We had a chance to get some things right in 2006 and we didn't do our language on um transparency and those things and it costs the world trillions of dollars.
▶ 2:19:12Um if we get this right, this is an industry that I think actually has um some nobility, but it's going to be more than just people making money because they issued a coin. I have this fascination of how we make our IDs bulletproof, how it becomes a way where the con artists out there that are stealing from wallets, stealing from others, we can shut that down. But also another thing, and I will ask for any of you and your collective wisdom.
▶ 2:19:41Um, you know, I have an interest with one of my Democratic colleagues of coming up with dimminimus that actually works. But I believe in an age of technology um this isn't armies and rooms full of people looking at the data coming back and forth that it's almost automagic. It will be the algorithm and some a little bit of AI mining that will watch the data coming back and forth.
▶ 2:20:10Um but with we have to sort of have the rails built in how we design the tax rules. So, as my um little girl uses the term um we can do this, but we have to be and there's there's my myth, my my difficulty.
▶ 2:20:33I want something that doesn't impair the future, but I want to be perscriptive enough to help the taxing authorities and Treasury know what the rules are. And you understand sometimes these two ideas conflict with each other. Um, you know, so with that, I I'd like to um say thank you for giving us your time. Be prepared for a series of questions over the next week or two that may come to you in writing. Please respond in writing.
▶ 2:21:02And if you have any articles or other things that will help educate us and our staff, please send it our way. And with that, the hearing is adjourned.