Regulatory winds in the US are changing. After several key moves from President Donald Trump’s executive branch, the US Congress is also showing off its pro-crypto stance. In a bipartisan vote, the Senate recently repealed a controversial crypto tax rule from Joe Biden’s era.
The repeal represented a major win for decentralized finance (DeFi) on March 4, as the US Senate voted 70-27 to repeal a crypto tax rule. The rule, which would have taken effect in 2027, required cryptocurrency companies, including DeFi protocols, to report user transactions to the IRS. It received wide condemnation from the crypto industry, including the Blockchain Association, which represents 76 crypto firms.
Republican Senators, as well as several pro-crypto Democrats, supported the bill. According to Republican Senator Ted Cruz, who proposed the motion, the rule would harm innovation. Cruz also claimed that the reporting requirements would drive American crypto companies overseas.
“This regulation undermines the purpose of DeFi technology,” Cruz claimed, “to enable individuals to freely buy, sell, and exchange digital assets.” He added, “America’s goal should be to prioritize innovation, and this rule is the opposite.”
The repeal’s next step is to pass the House of Representatives. Republican Congressman Mike Carey, who introduced the legislation to the House, explained that the rule was impractical. It would result in a “tidal wave of new digital asset returns, overwhelming IRS resources,” Carey explained.
Still, critics claim the repeal would create a tax loophole in the DeFi industry. Specifically, it would make it harder for the IRS to tackle tax evasion and other types of financial crime.
Why Democrats Voted for Crypto Tax Rule Repeal
The bipartisan nature of the Senate vote to repeal a Biden-era rule surprised even many in the crypto industry. Kristin Smith, the CEO of the Blockchain Association, stated that it was “absolutely mind-blowing” that so many Democrats supported the bill.
She further stated, “This is the most pro-crypto Congress ever and this effort was the first moment to convert that sentiment into action.”
One possible reason was the crypto industry spent over $130 million in the 2024 elections. The spending went to support both Republicans and Democrats who were favorable to the crypto industry.
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