Crypto's IRS Victory Reveals Reach in Congress That Demands Less Compromise

U.S. crypto lobbyists watched with excitement in recent days as a pair of votes cemented what they’d hoped: Congress is on their side.

The industry that battled with pariah status just three years ago has staunch allies now in the White House and inside the U.S. financial agencies, and the recent votes in the Senate and House of Representatives on an Internal Revenue Service rule demonstrate that their support among lawmakers runs deep. So many Democrats joined the sector’s reliable Republican allies on those votes that crypto advocates suggest they may not have to give up much in negotiations over legislation that matters even more.

Just before he left office, former President Joe Biden’s IRS put a final stamp on a rule to pursue decentralized finance (DeFi) projects as brokers that would have to conduct the full range of tax reporting for users. The House and Senate both cast votes over the past week and a half under the Congressional Review Act to kill that rule, and both of those votes succeeded by massive margins, thanks to 19 Democrats in the Senate and 76 in the House who bucked the policy of their party’s administration.

With more than a third of Democrats on board in each chamber, there’s little reason to suspect those Democrats wouldn’t also be positively inclined to support other crypto topics.

“For years, we’ve been playing defense — trying to protect the industry from hostile regulators and relying on compromises that, in many cases, weakened the final legislative product,” said Kristin Smith, CEO of the Blockchain Association that advocates for pro-crypto policy in Washington. “But now we’re able to think a bit more expansively about what’s possible at the federal level.”

The digital assets bill that’s closest to completion is the effort to govern U.S. stablecoin issuers. With a House version getting a once-over in committee this week and the Senate’s version heading toward a potential sign-off by the Senate Banking Committee, the two chambers may soon find themselves voting on the finished legislation. In a period of extreme partisanship, crypto could be one of the few issues to stand on common ground.

As the details are hashed out, an industry that may once have been pressured into aggressive controls on anti-money-laundering systems in order to maintain the support of some Democrats could instead afford to press on without giving ground, crypto insiders are noting.

The industry’s bigger prize, though, is the future legislation that will once-and-for-all set a clear system of regulations for U.S. crypto trading and transactions, and for the businesses and projects that handle people’s digital assets needs. If Congress passes such a bill on the operation of the crypto markets, it eliminates any legal fumbling by federal agencies trying to fit existing laws onto the sector, and it would negate the need to look for answers in the courts.

Lawmakers are trying to build off previous efforts — most notably the Financial Innovation and Technology for the 21st Century Act (FIT21), which passed the House in the last session, but not the Senate. While a replacement effort may be further out than stablecoins, when it starts moving through this Congress, it could have a significantly easier path than its predecessor.

Even on the same day lawmakers were preparing for the ultimate partisan exercise as President Donald Trump prepared to make his recent address to Congress, the parties made their huge bipartisan showing in the Senate. That “rare and fleeting” congressional cooperation should allow the lawmakers to focus on the actual policy, Smith said.

How did crypto get here?

Congress was flooded with new allies after the 2024 elections, in which the industry-backed Fairshake political action committee expended about $139 million to help get pro-crypto lawmakers from both parties elected. Potentially as important in the ongoing legislative negotiations, though, is the fact that the super PAC is already sitting on $116 million (and growing) to do the same next year. As lawmakers approach their votes this year, they’ll know that a pro-crypto vote has a good chance of resulting in campaign dollars, and an opposition vote will likely result in spending aimed to snuff out their political careers.

The main sources of money behind Fairshake are Coinbase, a16z and Ripple Labs, with other backers including Jump Crypto and Uniswap Labs. Coinbase CEO Brian Armstrong said in an interview outside the White House crypto summit last week that his company will keep supporting Fairshake, which he said “did an incredible job.”

“Our supporters in this industry are deeply committed to this political strategy,” said Josh Vlasto, a spokesman for Fairshake, in an interview with CoinDesk. “We are seeing it in action now, and are going to continue to press forward.”

He said the IRS votes were “a direct result of that strategy,” which ignored politicians’ other views and party affiliations to focus only on whether they’d push for crypto bills.

“There’s tremendous political benefit in supporting the growth and smart regulation of the industry,” Vlasto said.

Even before the recent elections, FIT21 had earned major Democratic support in the House, and a separate effort to try to get rid of a Securities and Exchange Commission crypto accounting policy saw significant bipartisan support in both chambers. The industry was already making headway.

Then the course of the last congressional-election cycle saw a clear rise in voter experience with cryptocurrencies and an increasing interest that the space be regulated. Groups such as the Coinbase-backed Stand With Crypto have sought to tap into that crypto-interested segment of the population.