In the hottest collaboration since Balenciaga teamed up with Kanye West to walk a mud-covered runway in Paris yesterday, Gary Gensler and Kim Kardahsian have gotten together to settle charges of an illegal crypto promotion scheme. Kardashian has agreed to pay a $1 million fine and refrain from crypto promotions for three years after failing to disclose a $250,000 payment for promoting the crypto token EMAX — which has since lost almost all of its value — on Instagram last year, according to a press release the SEC sent out early this morning. The settlement marks the highest-profile crypto enforcement action to date. By going after one of the country's biggest celebrities, Gensler gets to leverage the Kardashian brand to bring attention to his crypto crackdown. Since his confirmation last April, the SEC chief has made tough crypto enforcement a top priority, while laying claim to jurisdiction over vast swaths of blockchain activity. This has drawn sustained protests from crypto's backers. And at first blush, today's settlement seems like another setback for the technology, reinforcing its associations with flimsy celebrity endorsements and dodgy promotional schemes. But there's another way to see it — as a win-win for the industry and regulators like Gensler. In the complicated dance between emerging Wild West industries and government authorities, high-profile regulation can help legitimize an industry by creating the perception (and, presumably, a reality) that government oversight is purging dangerous scams, and ensuring that what remains is safe and effective. Some recognized those benefits in today's settlement: "I think it's great," said Eric Soufer, a former aide to New York Attorney General Eric Schneiderman who now leads crypto work at the public affairs firm Tusk Strategies. "You're not going to have a viable industry in five to 10 years, maybe less, if people don't trust it." Just don't hold your breath for a chorus of crypto backers to join in the praise. Blockchain technology was invented to stymie government control, so many of its staunchest advocates oppose any regulation, even if some establishment-minded firms have called for proactive government action to provide regulatory clarity. They're especially loath to applaud Gensler, who has relished the role of crypto's bad cop. "Even if people respect something the SEC does," Soufer said. "Gary Gensler is the Antichrist of the crypto universe." But historically, regulation has helped clean up the image not only of novel financial products but of industries like medicine, where the advent of the Food and Drug Administration in 1906 helped the pharmaceutical industry lose its association with snake oil salesmen and quackery. In fact, in the case of today's settlement, Byron Gilliam, markets strategist at the crypto-focused media firm Blockworks, argues that the SEC may be giving crypto tokens like EMAX too much credit by treating them as securities. "They'd be better off telling people crypto is not an investment class and trading it is more like betting on college football than investing in the stock market," he said. In that sense, Gilliam likened the effects of Gensler's crypto oversight to those of an older SEC prerogative. "It's a lot like insider-trading laws, which I think are ineffective, but are aimed at promoting a general sense of fairness," Gilliam said. "If people think a market is rigged, they won't participate."
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