July 8, 2024

By JB Ferguson, Global Head of Tech, Media, and Telecom Policy

*As we reach the year’s midpoint, Capstone is revisiting our sector 2024 predictions and looking ahead to the second half of 2024.

From lifelike language models to the cutting-edge semiconductors that drive them, science never sleeps in the relentless march of technological progress. As regulators and legislators scramble to keep pace, numerous underappreciated opportunities and risks have emerged, demanding the attention of investors and companies.

Capstone’s expectations at the start of 2024 have started to play out, from the SEC’s softening stance toward crypto to the federal government’s relative inaction on AI policy. We expect these themes to continue for the balance of the year. The upcoming election is also expected to add more drama for the likes of social media companies, apps like TikTok, and crypto.

In a recent Q&A, Capstone’s JB Ferguson, Capstone’s global head of tech, media, and telecom policy (TMT), provides updates on what the rest of 2024 holds for tech policy.

Did you have any expectations going into 2024 that have already played out?

SEC: We think the SEC’s retreat on its most challenging crypto perspectives has mostly played out.  The announcement that it had ceased its investigation of the Ethereum Foundation was a clear signal that it has declined to take the view that proof-of-stake blockchain tokens are securities.  We continue to expect Ethereum ETFs to be approved, followed eventually by Solana and other popular chains’ native tokens.

FTC: The FTC’s strategy change under Chair Lina Khan has also mostly played out. The agency has taken some big swings but has yet to score a significant victory in antitrust or consumer protection. To be fair, Chair Khan and her allies were explicit about their expectation the FTC would lose more often in exchange for a shot at moving the goalposts.  We do think the resuscitation of the notice of penalty authority process lays some interesting groundwork for the future and would certainly accelerate in a second Biden administration.

Our expectation that the federal government would do nothing of substance on AI policy has borne out. The industry is too much of a competitive advantage for the US

AI Policy: Lastly, our expectation that the federal government would do nothing of substance on AI policy has borne out. The industry is too much of a competitive advantage for the US, and game-theoretically there is no optimal way for the US to restrain domestic advancements without potentially damaging national security.  Our expectation is that most regulation and legislation will come from the states in the near future.

What do you think was overlooked by the market in the first half of the year that it must pay attention to?

The EU’s AI Act is definitely overlooked by the market.  In a replay of the General Data Protection Regulation (GDPR) experience, we expect US companies to wake up very late in the game to their compliance obligations and scramble to align with the law before the implementation deadline in June 2026 for the “high-risk systems” identified in Annex III.  That list includes things like systems that affect the assignment of work, and systems that gate access to educational opportunities. There are many HR and EdTech products that would be affected, even if they use relatively simple statistical optimizations that are not usually labeled ‘AI.’  High-risk AIs are required to establish robust risk management systems akin to model governance practices in financial services, engage in market monitoring to proactively identify risks, and have registration obligations.

The EU’s AI Act is definitely overlooked by the market… we expect US companies to wake up very late in the game to their compliance obligations and scramble to align with the law.

It will likely take a couple of additional years for the Court of Justice of the European Union to hand down judgments bolstering the law, but we do not think that process will be nearly as lengthy as the one for GDPR.  The EU has learned its lesson from the difficulties of forcing Ireland’s Data Protection Commission to enforce GDPR against Meta, and the AI Act uses a very different structure.

How will the upcoming election influence policy and regulation in the tech space?

A lot is more dependent on Congress than on the presidential election.  We’re watching for CHIPS Act expansion and a privacy framework as potential bipartisan legislation in the next Congress, among other things.

If you think about the lag between construction spending and actual jobs in the fabs that are being built, the CHIPS subsidies are likely to be very popular at a state level in the second half of the next Congress.  CHIPS was a small downpayment on a national security priority. If there are no scandals around the recipients surreptitiously expanding China’s leading-edge capabilities, it should be a relatively easy “feel-good” bipartisan priority.

Privacy is a tougher nut to crack, but the sheer number of state laws that have now been passed even in places that are not hotbeds of consumer protection militates for a federal solution.  The House Energy and Commerce Committee markup for the American Privacy Rights Act was canceled just before its scheduled start last week, but if either party gains control of both chambers some version of the bill could get done.

Which themes would benefit from a potential Trump 2.0, and which would not?

Threats to TikTok would almost certainly benefit from a Trump 2.0 administration, given the candidate’s sharp reversal of position and now-enormous following on the platform.  This benefit probably extends to most PRC-based apps, as it would be difficult for the Trump administration to draw distinguishing lines between them.  Mechanically, we would expect the potential Trump administration to withdraw its support for the TikTok ban bill.

Threats to TikTok would almost certainly benefit from a Trump 2.0 administration, given the candidate’s sharp reversal of position and now-enormous following on the platform.

Trump has recently declared himself pro-crypto, going so far as to declare his desire that all future bitcoin be mined in the U.S.  While we struggle to understand how that would be possible, even in far-tail scenarios, it is a dramatic shift from the position of his first administration.  In addition, Trump would likely select a new Chair.

We think social media companies (especially Meta) would not benefit from a second Trump administration. The companies’ responsiveness to government suggestions about restraining alleged disinformation will be a focal point of the administration’s attacks on the industry.  The platforms additionally find themselves vulnerable on the issue of content moderation for underage users.

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