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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, an alternative asset manager and SEC-registered investment adviser. The author’s firm, Skybridge, has multiple investments in cryptocurrencies, including the Algorand Foundation’s ALGO token, and crypto and blockchain-related companies, including Kraken.