Op-ed: Crypto and blockchain need a trellis, not just a weed killer, says Scaramucci
Anthony Scaramucci, founder and co-managing partner of SkyBridge Capital.
Jared Siskin/Patrick McMullan | Getty Images
You might not know this, but Goldilocks and the Three Bears is actually a story about the debate currently surrounding regulation of the blockchain and crypto industries.
Some people say there’s too little regulation. Some people say there’s too much. Some people think somewhere in the middle is just right.
But nobody can agree about where that “somewhere” is, we argue about it for years, and Goldilocks gets on Twitter to angrily threaten to move to another country where the soup is more to her taste.
Fortunately, “Too little, too much, or just right” is just one of the many ways we can have a civil conversation about how to regulate this industry. And it happens to be a terribly oversimplified one. A more nuanced framework that deserves much more attention than it receives: “Stop bad, support good.”
For a long time now, Gary Gensler’s SEC has been the (de facto, not de jure) most prominent and outspoken regulator of cryptocurrencies.
The agency nearly doubled the size of its crypto assets enforcement unit last May. It demanded over a million dollars from Kim Kardashian for her role in pumping crypto last October (big score for everyone who had the foresight to put “SEC publishes a press release with Kim K’s name in the headline” on their 2022 bingo card). It cracked down on Kraken’s staking program with a big fat (for Kraken) $30 million fine last month.
The fanbase cheering on these moves isn’t exactly huge.
Even from within, other commissioners—like Hester Peirce—have publicly criticized the agency’s approach. Its tug-of-war with other agencies, including but not limited to the CFTC, continues despite President Biden’s call for harmony in his executive order on crypto last March. And, of course, industry executives are happy to offer their two (non-interest bearing, of course) cents.
Many in the crypto industry want this “regulation by enforcement” to stop. But as Alison Frankel at Reuters and former SEC Office of Internet Enforcement Chief John Reed Stark both suggested earlier this year, there’s probably no end in sight.
Why? Because this is what the SEC does best. Enforcement is in its DNA.
The SEC is a weed killer. We can’t get mad at a weed killer for not growing fruit. At best, we can argue about what does or doesn’t constitute a weed, and whether or not the thing that just got sprayed should’ve been.
The approach the U.S. federal government has taken to regulating this industry is a bit like spray coating your entire garden with Weed B Gon (not an endorsement) and then, waiting for the harvest.
This is exactly why “Too little, too much, just right” isn’t sufficient. But “Stop bad, support good” helps us realize that we are missing half the puzzle.
Well-crafted government policy doesn’t just stop bad actors. It also promotes progress and prosperity. It’s as much of a trellis for good plants as it is a weed killer. That’s what we’ve lost sight of.
That’s why it can’t be just the SEC. We need a more holistic approach at the federal level.
That’s why we need to advocate for public-private partnerships like Abu Dhabi’s recently announced $2B initiative to back blockchain and Web3 startups or the older UNICEF Venture Fund launched in collaboration with Giga to make investments with crypto in early-stage tech startups.
That’s why we need to raise awareness about big grants supporting research and education at the university level like Ripple’s University Blockchain Research Initiative, the Wyoming Advanced Blockchain Lab made possible by a donation from IOHK at the University of Wyoming or the Algorand Foundation’s ACE program.
And that’s why we need government officials to balance the narrative, helping the American public to see that it’s about keeping the baby as much as it is about throwing out the bathwater—whether that’s making financial services inclusive and more frictionless, financing new and exciting applications of blockchain tech or simply supporting the spirit of American innovation.
Scaramucci is the founder and managing partner of SkyBridge Capital, an alternative asset manager and SEC-registered investment adviser. The author’s firm, Skybridge Capital, has multiple investments in cryptocurrencies, including the Algorand Foundation’s ALGO token, and crypto and blockchain-related companies, including Kraken.
Tik Tok creators gather before a press conference to voice their opposition to the “Protecting Americans from Foreign Adversary Controlled Applications Act,” pending crackdown legislation on TikTok in the House of Representatives, on Capitol Hill in Washington, U.S., March 12, 2024.
Craig Hudson | Reuters
The Supreme Court on Friday will hear oral arguments in the case involving the future of TikTok in the U.S., which could ban the popular app as soon as next week.
The justices will consider whether the Protecting Americans from Foreign Adversary Controlled Applications Act, the law that targets TikTok’s ban and imposes harsh civil penalties for app “entities” that continue to carry the service after Jan.19, violates the U.S. Constitution’s free speech protections.
It’s unclear when the court will hand down a decision, and if China’s ByteDance continues to refuse to divest TikTok to an American company, it faces a complete ban nationwide.
What will change about the user experience?
The roughly 115 million U.S. TikTok monthly active users could face a range of scenarios depending on when the Supreme Court hands down a decision.
If no word comes before the law takes effect on Jan. 19 and the ban goes through, it’s possible that users would still be able to post or engage with the app if they already have it downloaded. However, those users would likely be unable to update or redownload the app after that date, multiple legal experts said.
Thousands of short-form video creators who generate income from TikTok through ad revenue, paid partnerships, merchandise and more will likely need to transition their businesses to other platforms, like YouTube or Instagram.
“Shutting down TikTok, even for a single day, would be a big deal, not just for people who create content on TikTok, but everyone who shares or views content,” said George Wang, a staff attorney at the Knight First Amendment Institute who helped write the institute’s amicus briefs on the case.
“It sets a really dangerous precedent for how we regulate speech online,” Wang said.
Who supports and opposes the ban?
Dozens of high-profile amicus briefs from organizations, members of Congress and President-elect Donald Trump were filed supporting both the government and ByteDance.
The government, led by Attorney General Merrick Garland, alleges that until ByteDance divests TikTok, the app remains a “powerful tool for espionage” and a “potent weapon for covert influence operations.”
Trump’s brief did not voice support for either side, but it did ask the court to oppose banning the platform and allow him to find a political resolution that allows the service to continue while addressing national security concerns.
The short-form video app played a notable role in both Trump and Democratic nominee Kamala Harris’ presidential campaigns in 2024, and it’s one of the most common news sources for younger voters.
In a September Truth Social post, Trump wrote in all caps Americans who want to save TikTok should vote for him. The post was quoted in his amicus brief.
What comes next?
It’s unclear when the Supreme Court will issue its ruling, but the case’s expedited hearing has some predicting that the court could issue a quick ruling.
The case will have “enormous implications” since TikTok’s user base in the U.S. is so large, said Erwin Chemerinsky, dean of Berkeley Law.
“It’s unprecedented for the government to prohibit platforms for speech, especially one so many people use,” Chemerinsky said. “Ultimately, this is a tension between free speech issues on the one hand and claims of national security on the other.”
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