A House committee hearing on the taxation of digital assets offered a glimpse into lawmakers' views, highlighting rifts in approaches, as Congress moves to regulate the $2 trillion sector piece by piece.

On Tuesday, the House Ways and Means Committee, a key tax-writing panel, debated how to tax digital assets following the release of seven Republican-led bills. 

"Today marks the first legislative hearing in this Committee in years, which highlights the importance and complexity of digital asset taxation," said the committee's chair, Rep. Jason Smith, R-Mo., in his opening remarks.

"The days of debating whether digital assets are a passing fad are gone," he added.

Last week, Republicans on the House Ways and Means Committee introduced seven bills to establish rules for taxing digital assets. One bill sets tax limits on smaller crypto transactions, another defers taxation for mining and staking until the assets are sold, and a separate bill extends wash sale rules to cryptocurrencies. 

The bills need bipartisan support in order to eventually advance out of the committee in a markup. The legislation could then later be included in a reconciliation bill that needs a simple majority vote, but that has strict rules on what can be included. 

All of this comes as Congress is running short on time to pass legislation before November's midterm elections, when lawmakers' attention will increasingly shift to their campaigns, and the outcome could reshape leadership of key committees next year.

Lawmakers are also working on passing into law a much broader bill, called the Clarity Act, that would regulate the crypto industry at large for the first time at the federal level. That comes after lawmakers passed into law a year ago a bill that regulates stablecoins. 

Congress is also focused on other non-crypto-related bills, including government funding and an annual defense authorization bill.

Tax bills  

Ahead of the hearing, the crypto and banking industry voiced concerns about the bills, including how wash sale rules are applied and how parity between crypto and other more traditional assets should shake out. 

During Tuesday's hearing, there seemed to be a consensus among some Democrats not to rush the process. 

"We're wading into a novel topic with a degree of caution, which is an important consideration," said top Democrat of the committee, Rep. Richard Neal. 

Neal said the bills put forth were "sensible," but also said that some provisions  "deviate substantially from general tax principles."

Neal also noted that he wants bipartisan legislation, but added that there was an education gap on the topic between both Republicans and Democrats. 

Lawrence Zlatkin, Coinbase's vice president of tax, testified that it is "incumbent upon Congress to do something," citing the size of the digital asset sector. 

Rep. John Larson, D-Connecticut, asked about overall urgency for crypto tax rules. Larson acknowledged a sense of urgency, but also voiced concern about acting too quickly. 

"There is a sense of urgency, but there's also a sense of, are we acting too quickly without knowing what we're doing," Larson said. "And when I saw we, I'm not talking about you, I'm talking about the United States Congress who represents the public ... I think this is a promising industry, but there are far more questions than there seem to be answers to give the confidence that we've got it right just yet."