Crypto Community Reacts Negatively to the US Inflation Reduction Act

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Key Takeaways

  • Act plans to decrease Inflation by raising an estimated $739 billion in revenue — $433 billion of which would be spent on energy and climate programs. 
  • Many argue the IRA Act could lead to Inflation and a possible recession.
  • The Act allocates $45 billion to Internal Revenue Service to provide digital asset monitoring and compliance activities.

Inflation has been taking down world economies one day at a time, and the United States is no stranger to sky-high inflation rates. The annual inflation rate in the US increased to 9.1% in June of 2022, the highest since 1981. As the US economy was coming into peace with the High Federal Reserve Rates and a possible recession, the US Senate passed the Act dubbed the Inflation Reduction Act on Sunday.

The Democrats say the Act would help decrease Inflation by raising an estimated $739 billion in revenue — $433 billion of which would be spent on energy and climate programs and by expanding Affordable Care Act subsidies. The increase in revenue will be from increased IRS enforcement and a 15% minimum corporate tax.

Nonpartisan analysts believe the 755-page “Inflation Reduction Act” would only have a minor effect on surging consumer prices. Earlier this week, Economists warned the US government about the possible downsides of the Act.

The Economists in its letter said, “In particular, it’s $433 billion in proposed government spending would create immediate inflation pressures by boosting demand, which the supply-side tax hikes would constrain supply by discouraging investment draining the private sector of much-need resources”.

If Inflation does increase, investors can try to seek out more security. Individual investors, who already make up a disproportionate cross-section of the crypto market, are likely to take their money out of investments. This can drag down the value of crypto and redouble those losses during a recession.

Many have also acknowledged that the bill does have measures to ease the burden of Inflation, including opening up avenues for drilling and fast-tracking pipeline construction to increase the available supply — thereby lowering costs for the average consumer. Despite the Act widely touted as a move to reduce Inflation by not entirely relying on increasing Fed rates, many in the crypto community are not convinced.

The Senate Inflation Reduction Act has rubbed the crypto community in a way since it allocates $45 billion to Internal Revenue Service specifically to provide digital asset monitoring and compliance activities.

The community believes that weaponizing the IRS to crackdown on digital assets will impact the crypto market negatively.

Crypto Community Reacts Negatively To The Us Inflation Reduction Act
Digital Asset Compliance Mention in the Act

If the Act does lead to Inflation, crypto enthusiasts believe it could lead to a short pump and eventual decline in the prices of crypto. As analysts and economists have mixed opinions about the Act and its impact on the economy, one can now only watch and see how the US crypto market reacts to the Act.

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Saniya Raahath
Saniya Raahath

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