U.S. Regulators Refuse to Pick a Lane, Everybody Suffers

If American regulators had their way, they would see the popular and innovative social media platform Tik Tok on-shore operations and ownership. As they will tell you, Tik Tok is a “potential threat vector” and the only way we can be sure it poses no threat is to ensure American companies are the only ones with access to its sensitive user data.

If American regulators had their way, they would see the popular and innovative cryptocurrency exchange platforms Coinbase, Gemini, and Binance close American operations and head off-shore. As they will tell you, cryptocurrency exchanges “may not be complying with applicable law” and offer no protection “against fraud, manipulation, front-running, wash sales, and other misconduct.”

I, of course, understand the difference between the two - one is securities law and the other is (supposedly) a defense consideration. But the two cases run counter to the American tradition of fostering innovation and positioning itself as a global leader. We’ve reached a critical fork in the road on innovation and many in the startup community are begging: can we please decide who to be and go be it?

The United States of America has an undeniable leading place in the history of technological innovation. It’s a given that we wouldn’t find ourselves in the position of debating matters like social media data and cryptocurrency definitions without, you know, the invention of the internet itself. When the United States government lifted restrictions on commercial use of the internet, it paved the way for an explosion of internet-based businesses and services we see today. The government’s policy of fostering innovation has made a near-immeasurable impact on the global economy and society.

Those are the kind of sentences that sound like hyperbole but are not; we nailed it when it came to spurring innovation.

Politicans and the leaders of our American institutions remain steadfast in talking the talk, insisting (near-universally) they are pro-market and claim to encourage innovation.

Strange, then, is the position we find ourselves in today.

The American political class seems to have seized upon Tik Tok as a boogeyman, with criticism coming from Democrats and Republicans alike. President Joe Biden called Tik Tok a “matter of genuine concern,” and House Speaker Kevin McCarthy promising ”legislation to protect Americans from the technological tentacles of the Chinese Communist Party.”

One thing politicians can’t seem to answer honestly (for the public or, seemingly, for themselves): is Tik Tok doing anything different than Facebook parent Meta?

The answer, of course, is no. The uncomfortable truth is Meta is as problematic a steward of our personal data, if not worse. The lengths to which Meta has repeatedly violated our personal privacies are unknown but even the violations we are aware of is worse than anything Tik Tok has been accused of.

And Meta has not only violated privacy rights here in the United States but around the world as well.

American politicians don‘t seem concerned about Meta’s repeated violations or an apparent unwillingness to change. Politicians of all stripes are concerned that a company - which has never been proven to behave in such a way - might be doing the same thing to American citizens as an American company does to private citizens around the world. It’s plain and simple hypocrisy.

The innovative position would be to lead with a set of standards for all social media companies that operate within the country. A clear definition of rules and norms, a standard set of guidelines for each company - regardless of origin country - to abide by.

It’s this same struggle for cryptocurrency and blockchain companies within the United States.

Rather than define cryptocurrency and the correct way to manage the growing space, American regulators have opted instead to allow for self-regulation.

To its credit, the space generally did this well. Many scams were shaken out and addressed through the power of the free market, and leaders like Coinbase created and adopted their own set of comprehensive guidelines to define what is safe (and unsafe) for the American consumer.

Not one person I’ve spoken with has disagreed with Coinbase’s stringent listing guidelines yet after years of silence on the issue, the Securities and Exchange Commission filed suit, claiming Coinbase is listing securities available for sale.

Perhaps the S.E.C. could have provided an ounce of guidance in the past decade (or longer) that these American exchanges have been in operation. Their actions in 2023 come across as insincere at best.

What’s more, recent S.E.C. action (and its apparent inability to work with well-funded industry leaders, let alone the smaller startups and innovators in the industry) has had a chilling effect on the ecosystem in an unintended way: American crypto companies are holing up and seeking to move off-shore rather than deal with the uncertainty.

We find ourselves in the position where foreign exchanges and crypto payment gateways are hustling and out-innovating PayPal, Stripe, Coinbase, MoonPay, and others. Nascent innovators like NOWPayments are thriving, offering products and solutions that are likely three or four years away on PayPal’s roadmap - at best.

And hey that’s great for them but embarrassing for the reputation of America as a technology innovator and for the all-important American taxbase which relies on growth sectors such as these.

What America needs in this moment is technology leadership that presents a clear vision, not the hypocritical, xenophobic silliness of these last few years.