Can Your Grandma Retire on Crypto? U.S. Senators Take Different Views
Along w/ Portugal Rejects Crypto Taxes, Thailand Rejects VAT for Crypto, and Florida Passes Crypto Legislation
Twali Wrapped is a community-driven initiative tracking the most important developments of the past week for policy, regulation, compliance, and legalities, related to web3.
In addition, we speak with experts toiling with how best to implement regulation and policy changes, while prioritizing simplicity in communication to ensure our reader’s complete understanding of the implication of such developments.
We’re always looking for more experts in compliance, HR, legal, tokenomics, governance, accounting, tax, etc) If you know someone who would be interested, please send them the application form, and receive a referral fee in return!
The Docket
by Lucy Pappas
Welcome to the Docket - A Bulletin Board of the most important legislation either proposed or passed in the past week.
Rejected: Portugal Crypto Tax Proposals
Last week we reported on a crypto tax proposal from Portugal’s majority party. This week, two different proposals on crypto taxation were blocked by Parliament during their ongoing review of the 2022 Portugal State Budget. Both proposals were from Portugal’s left-wing minority party, suggesting that the majority-backed taxation may pass with more support.
Key Takeaways. After Wednesday’s vote, Portugal remains a tax-haven for crypto users and enthusiasts — however, it may be a short window before crypto capital gains taxes hit the country.
Rejected: Thailand VAT on Crypto
A proposal to add a 7% value-added-tax (VAT) on crypto sales was rejected by Thailand’s government, and postponed until 2024. This comes after Thailand’s easing of tax regulations back in March,
Key Takeaways. Thailand has demonstrated a pattern of small back steps on crypto regulation, which could be an indication of their possible (maybe skeptical) support. As the atmosphere in Asian markets has become more strict on crypto regulation (i.e., South Korea, China, India), Thailand may be rethinking where they stand.
Passed: Florida, United States
The Governor of Florida, Ron DeSantis, recently signed legislation that eases regulation of crypto assets.
The house bill broadly defines “virtual currencies” as “a medium of exchange in electronic or digital format that is not currency.”
Further, the bill:
clarifies that individuals do not need a Money Service Businesses (MSB) license if intermediaries are not involved in transactions.
Eases restrictions on platform and intermediary licensing and regulation.
Key Takeaways. While Florida’s state government is aggressively trying to frame itself as the crypto-hub of the United States, it will be competing for that coveted spot in the years to come.
Can Your Grandma Retire on Crypto? U.S. Senators Take Different Views
Despite the Terra-Luna meltdown and bear crypto market, industry advocacy efforts in DC are proceeding vigorously. This week, DC Metro commuters were graced with an advocacy campaign launched by Grayscale Bitcoin Trust. The firm continues to press the Securities and Exchange Commission (SEC) for approval of a Bitcoin exchange traded fund (ETF). Thus far the SEC seems unmoved, while U.S. crypto investors must look longingly to our northern neighbor for a picture of what could be (Canada has already approved three Bitcoin ETFs).
While much of the crypto policy dialogue tends to focus on the SEC —(and for good reason)— emerging fault lines surrounding the Department of Labor (DOL) and employer-sponsored retirement plans are also highlighting the politics of institutional crypto adoption.
Earlier this year, DOL’s Employee Benefits Security Administration published a compliance notice warning 401(k) plans to be careful about offering cryptocurrency investment options. The timing seemed prescient given Fidelity Investments’ plan to offer customers the ability to incorporate Bitcoin into their retirement portfolios. Fidelity is the largest administrator of 401(k) plans in the country. Many competing firms are surely wondering if they should follow suit.
U.S. Senator Tommy Tuberville (R-AL) and some of his Republican colleagues in Congress want to ensure crypto retirement options remain on the table. They introduced legislation in the U.S. House and Senate titled the Financial Freedom Act, which would prevent the DOL from restricting access to cryptocurrencies through 401(k)s. In a strongly-worded op-ed, Senator Tuberville takes the Biden Administration to task for “interfering” with the ability of individuals to invest their retirement savings as they see fit.
The criticism is not entirely fair. The compliance notice from DOL is more nuanced than Tuberville and his colleagues make it out to be. DOL never expresses a desire to stop retirement investors from choosing cryptocurrency. Instead, the agency highlights the significant risks of crypto investing; notes that any crypto offerings in 401(k) plans will be held to the same exacting standards as other investment options; and reminds plan administrators that they may be held liable for financial losses if they offer bogus crypto investment products.
For their part, Democratic lawmakers have also failed to inject clear thinking into the discussion. Senator Tina Smith (D-MN) and - you guessed it - Senator Elizabeth Warren (D-MA) were quick to demand answers from Fidelity about its planned Bitcoin offering. It should go without saying that writing an open letter is not exactly a sign of honest curiosity and good faith.
That leaves the rest of us to try and sort out the reasonable policy questions related to including crypto in an official retirement plan. First and foremost, what level of personal financial responsibility do we trust Americans with? We often throw around terms like “financial freedom” and “individual choice,” but under our current regulatory system, there are constraints surrounding personal investments. For example, several types of investment vehicles are only available to what the SEC defines as “accredited investors” — essentially licensed financial professionals or individuals with high net worths.
Some may view the status quo as unfair, but the regulatory framework did not develop out of nowhere. Financial laws evolved to guard against practices that cause real harm to real people. The SEC does not want inexperienced investors participating in a hedge fund or other complicated investment strategies where they could easily be deceived or defrauded.
Another critical question relates to custody of crypto assets. The DOL notice rightly points out that custody over crypto assets in the context of 401(k) plans is unclear and untested. The mantra of “not your keys, not your coins” rings loud and clear for many in the space. But is self-custody actually desirable if millions of Americans want to hold some crypto until retirement?
Debates over the future of crypto and finance are filled with questions that cut to the core of socio-political philosophies. A more informed policy dialogue is possible - but the crypto community will have to continue to be welcoming, patient, and understanding with new users and policymakers alike.
What'd you think of this Twali Wrapped?
Your feedback helps us improve the letter. Click on a link to vote and/or tell us what you'd like us to cover: