CFTC Former Chairman Christopher Giancarlo believes that the dam resisting cryptocurrency innovation in the United States is about to collapse.
Christopher Giancarlo, the former chairman of the U.S. Commodity Futures Trading Commission (CFTC), served as the 13th chairman of the CFTC. He is also a member of the U.S. Financial Stability Oversight Council, the President’s Working Group on Financial Markets, and the International Organization of Securities Commissions’ Executive Committee. Giancarlo is also the author of the book “CryptoDad-The Fight for the Future of Money,” which discusses his views on the world’s first regulated Bitcoin derivative market and the upcoming digital transformation of financial services.
Forbes recently interviewed Christopher Giancarlo. In this interview, we discussed the current regulatory landscape for cryptocurrencies, the prospects for new cryptocurrency legislation, whether the United States is falling behind other countries, and how the presidencies of Trump and Biden will impact the cryptocurrency industry in the next four years.
Forbes: How do you assess the current state of the cryptocurrency industry?
Giancarlo: A lot has been happening recently. This change is happening not only among startups and innovators, but also among traditional companies. Companies like Fnaility in the UK are tokenizing central bank deposits, and China’s digital yuan already has 260 million wallet users. The Atlantic Council estimates that 138 countries are researching central bank digital currencies, which account for 98% of global GDP. The development of privately-issued stablecoins, especially those based on the US dollar, is accelerating. If this Congress achieves anything, it is likely to be stablecoin legislation. I recently had dinner with Senator Tim Scott, and he is optimistic about the passage of stablecoin legislation. So, I believe stablecoins will continue to develop. I recently joined the board of Paxos, a stablecoin infrastructure provider. I am very excited about this change. In the cryptocurrency field, despite fraudulent activities like Sam Bankman-Fried’s, and the seemingly coordinated crackdown by the Biden administration, the vitality and usage of Bitcoin continue to grow. Therefore, decentralized tokens and value systems are still growing. The current suppressive stance of the United States is an exception, an exception in global development.
I think this is an anomaly in how Americans treat innovation in their history because it seems to be not limited to one political party but to a small faction of the Democratic Party. And this situation is not sustainable. I believe that if the November election threatens the Democratic Party, you will see a complete abandonment of the policies that have been hostile to crypto innovation in recent years.
Forbes: It is believed that if Senator Sherrod Brown, the Chairman of the Senate Banking Committee, is replaced by Tim Scott, it will pave the way for more cryptocurrency-friendly legislation. What would that look like?
Giancarlo: I think Tim Scott is very enthusiastic about the potential of this innovation. He showed me my book “CryptoDad” very friendly, and many pages of the book were marked and underlined by him, which surprised me. But it also tells me that he took the time to read my book and understand cryptocurrencies. So I think he can be a true leader in this field.
Forbes: Have you discussed cryptocurrencies with President Trump?
Giancarlo: Earlier this month, I gave a speech at the Washington Blockchain Summit, where I said that President Trump could rightfully be called the first cryptocurrency president of the United States. This is not because of what he said or did in the past two weeks, but because of what happened in his first year in office. That is the launch of Bitcoin futures by the CFTC. Why do I say that? I explained this very carefully in my speech, but what I want to say is that by approving Bitcoin futures through the CFTC, we ensured that the world’s first digital commodity, Bitcoin, is priced in dollars. This is important because the dollar has many advantages, but one of its main advantages is that most industrial commodities, such as oil, gold, iron, as well as soybeans, corn, and wheat, are priced in dollars. Therefore, the world needs to hold dollars to buy these key minerals, agricultural, and natural commodities. The pricing of commodities is not determined in the spot market, but in the futures market; the price of oil is not determined at gas stations. It is determined in places like the Chicago Mercantile Exchange. By approving Bitcoin futures, we ensured that the price of the world’s first digital commodity, Bitcoin, would be priced in dollars. Did the Trump administration say, “CFTC, go do this?” No, but did they stop us? No. Did they resist developing a healthy, prosperous, and well-regulated market like our current government? No, as I explained in “CryptoDad,” we were very careful to keep Secretary of the Treasury Mnuchin informed of everything we were doing, saying, “Listen, the government’s policy is not to create a healthy market, not to develop strict regulatory scrutiny or principles.”
If things go wrong during a president’s term, they will be criticized, which may be unfair to some extent, but they will also be praised when things go well. I’m not saying that the White House has expressed a position, but I think they can use this step as a reason. So, are there any other possible mistakes? I leave this topic for others to argue, but I think the development of Bitcoin futures, by the way, if we hadn’t done Bitcoin futures at the CFTC, there would be no Bitcoin ETF now. I don’t think Trump is particularly concerned about cryptocurrencies. I think he has his own issues, and he has spelled them out carefully. He has to deal with immigration, oil, energy use, and other issues. So I don’t think he bet on cryptocurrencies in his campaign, but I think history will recognize that Bitcoin futures were indeed an important step.
Forbes: The total market value of stablecoins is currently about $150 billion. Tether accounts for 80% of that, followed by USDC and other stablecoins. Before BUSD was shut down, Paxos was a major player. I know they provide backend services for PayPal and their own stablecoin. How much room is there for more private stablecoins? Do you think USDT’s current dominance is unshakable?
Giancarlo: There is a great demand for the US dollar worldwide. In fact, from South America to Africa to Southeast Asia, the demand for the US dollar is still very strong. As I mentioned before, unfortunately, in many countries, the value of the domestic currency is even less than paper. The US dollar is still a very important hard currency. The problem with the US dollar is that it is difficult to obtain in many parts of the world. Therefore, I believe that there will be a huge global demand for a digital version of the US dollar because it is practical and efficient.
I think that the United States, through stablecoin legislation, will enable well-operated and compliant stablecoin operators to meet global demand. Once licensed US participants have it, there will be a great opportunity to take market share from Tether. So I am excited. I think Circle has done a lot, and PayPal has a large distribution network. Therefore, I think US companies that are now licensed have the opportunity (hopefully under legislation passed by Congress) to meet global demand. This ultimately benefits the United States.
Forbes: What do you think is the balance point between yield-bearing stablecoins and non-yield-bearing stablecoins? I know the current legislation is about non-yield-bearing stablecoins, but at some point, I imagine token holders will get tired of giving their money to Tether and making these people billionaires.
Giancarlo: I agree. Similarly, worldwide, if you are in a country like Argentina where the inflation rate is historically high, there will be a huge demand for yield instruments based on the US dollar. I don’t think domestic demand is the driving force, but rather overseas demand. The US dollar is an export product.
Forbes: Do you think stablecoin legislation will pass and become law this year?
Giancarlo: This is an election year, and we actually have three, four, or five weeks left. Once July 4th arrives, in terms of legislation, nothing will happen, or historically, nothing will happen in the election year after July 4th. Unless there is a crisis or market crash like in 2008. So, I’m not optimistic, but I believe that stablecoin legislation will eventually pass in the long run. I think both parties support it. I think the biggest driving force is to create more demand for US government debt. Unfortunately, one of the main driving forces is that we are a nation that lives on credit cards, and we need more people to buy our debt, and that’s what stablecoins will provide.
Forbes: Despite the likely veto of SAB 121 by President Biden, the first dedicated legislation for cryptocurrencies has passed both houses of Congress. What is your overall view of this? Does it reflect the current legislative atmosphere for cryptocurrencies?
Giancarlo: I think this shows the influence of Elizabeth Warren and her campA shrinking iceberg. It was a very good statement when Senate Majority Leader Chuck Schumer signed the condemnation against 121. Now, Machiavelli may say that he could sign it because he knows the White House will veto it, but I think it’s a very good condemnation, and you have to think that the banks also support this. Although certain parts of the banking system may resist digital asset innovation, forcing them to retain 100% of the assets they hold actually means that banks cannot participate in this innovation. Therefore, the White House may veto this, but I think it will leave them abandoned by the tide of history.
This is also a generation gap issue. This anti-cryptocurrency view typically comes from people in their 80s, and the next generation does not need to embrace this innovation. One of my favorite writers is Douglas Adams, who wrote “The Hitchhiker’s Guide to the Galaxy” series. Adams has a famous quote that I want to rewrite here: “Anything invented before your 35th birthday is cool, and worth devoting a lot of time and energy to, maybe even your entire career. But anything invented after your 35th birthday is a dangerous suspect and needs to be suppressed.” I think for those who grew up in the traditional banking system, they have a lot of inherited hostility towards cryptocurrency, and they cannot understand it and think it is dangerous.
Forbes: What do you think of the 21st Century FIT Act? When we interviewed you three years ago, you mentioned that the CFTC has never regulated the retail market. It seems that the CFTC has a responsibility in this bill. How will this play out?
Giancarlo: My thoughts on this are also evolving. A few years ago, when I was at the CFTC, one thing I thought about, and I still believe now, is that the CFTC is both special and very capable, and that is its primary regulation of the wholesale market rather than the retail market. The reason it is primarily a wholesale regulatory agency is because it regulates the futures market, which is mostly populated by professional traders. The CFTC does not regulate the spot market, which has a large number of retail traders. This bill will give the CFTC market regulatory authority to regulate the cryptocurrency spot market, not just the derivatives market. Therefore, the CFTC will be involved in some level of retail market regulation. My thoughts on this have changed, in part because the CFTC already has some retail regulatory areas and has proven itself to handle them well. Secondly, at the end of the day, as a country, we need to regulate the retail cryptocurrency market, and someone has to do this work. The CFTC launched bitcoin futures as early as 2017, which proved it to be a very capable cryptocurrency regulatory agency. What I mean is that the market today is deep, liquid, transparent, and well-regulated. I would even say that the only part of Sam Bankman-Fried’s empire that hasn’t collapsed is the part regulated by the CFTC. I think the CFTC has been successful in this regard; I think it is now capable of doing this work. Congress will have to provide the resources for it to do this job. With the proper resources, I think the CFTC can do a good job.
I have great respect for the SEC, but they have been unwilling to establish regulatory standards for cryptocurrency regulation. They say that the rules for stocks also apply to cryptocurrency. It’s like saying the same rules apply to railways and aviation. They are both modes of transportation, but they are completely different technologies. The SEC has established different rules for municipal bonds, debt, and stocks, so there is no reason why they cannot establish a set of tailored rules for cryptocurrency. But the SEC has been unwilling to establish these rules.
Forbes: The Chicago Mercantile Exchange (CME) is evaluating offering spot trading for Bitcoin and Ethereum. What impact do you think such a strictly regulated market will have on the spot and derivatives markets? Did you discuss this issue when you were leading the CFTC?
Giancarlo: I don’t want to share the details of that conversation, but I just want to say that CME is a very serious participant. They are not only a commercial training platform, but also a self-regulatory organization. They place great importance on compliance. They have demonstrated the ability to successfully establish a bitcoin futures market. I think among the participants who can enter the spot market and establish a very confident and successful spot market, they will definitely be included. We have several very powerful market operators in the United States, such as Nasdaq, Intercontinental Exchange, New York Stock Exchange, and other institutions like the Chicago Board Options Exchange. But I think CME is a very suitable candidate.
Forbes: An interesting counterpoint is that their competitor, the Chicago Board Options Exchange (CBOE), recently shut down its spot market. What does this mean for the prospects of CME?
Giancarlo: I would say that establishing a new market is a bit like capturing lightning in a bottle, it is very difficult. The fact is, for every 10 new products launched, maybe only one or two will continue and gain attention. Exchanges constantly launch new products, they are a bit like venture capital funds. Out of every 10 products, they hope that one or two will persist. Sometimes, the key is to seize the right timing and set the parameters of the product correctly. When they are launched, you will hear them being promoted, and then many of these products quietly shut down three or four months later. They never gained any attention. I haven’t seen the products of the Chicago Board Options Exchange or talked to anyone about it. So I don’t know why it didn’t gain attention.
Forbes: I want to ask you about Bluprynt because information disclosure is important, and there is a view that the SEC is trying to force teams to submit disclosure and registration documents that are inconsistent with cryptocurrencies. Do you have anything to add to this?
Giancarlo: That would be interesting. I hope to follow the scope as Professor Chris Brummer said, and not go beyond it. As an investor, I shouldn’t talk about Bluprynt-related issues.
Forbes: Just in a general sense.
Giancarlo: The need for information disclosure will be part of the future of digital assets, and this is not just happening in the United States. We have our own unique way of information disclosure, and other countries like Europe have now implemented MiCA (cryptocurrency asset legislative market) that requires information disclosure. I don’t think the United States will play a leading role in setting global standards for cryptocurrency disclosure like we do in a similar world. We have missed the opportunity to lead in setting rules on how to publicly trade cryptocurrencies because we have been unwilling to establish those rules. I think it is likely to be Europe, which has now enacted laws and has the opportunity to set global standards. I think Bluprynt’s opportunities are not limited to the United States.
Forbes: Besides Bitcoin and Bitcoin DeFi, a major theme this year is Memecoins. What are your thoughts on them?
Giancarlo: I am not a critic, and some people think that Memecoin investors are foolish, and these tokens waste everyone’s time and energy. I do think they embody the spirit of our time. By that spirit, I mean the reckless printing of money in the United States, which has made it impossible for many young people to own a home. Coupled with the widespread promotion of gambling, not only by commercial actors like the NFL, but also by states and governments through lotteries, with a disclaimer attached. Apart from that, you can bet as much as you want. However, somehow, we should criticize young people speculating on meme stocks as if this kind of gambling is irresponsible, but betting on football matches or state lotteries is responsible gambling? I think Meme stocks and Memecoins are products of our era.
Forbes: Do you have any concluding remarks?
Giancarlo: I think the dam resisting the innovation of cryptocurrencies in the United States is about to collapse. No matter what happens in November, it will collapse. Once the dam collapses or the door is half open, it will be completely open. I believe this because I have traveled globally from London to Tokyo, Dubai, Singapore, and Paris. The whole world is saying, “Let’s cultivate our own cryptocurrency seeds now and work hard to make them take root and sprout.” All these countries’ very smart and savvy regulatory agencies believe that the United States will turn the tide in the next 24 months, and people will flock to Brooklyn, Silicon Valley, and Austin, Texas. They want to ensure that they have some kind of endurance within their jurisdictions. I think they are right. They have seen the United States do this before. Winston Churchill once said that the United States will always do the right thing after trying all the alternatives. I think we have been trying alternatives. These measures are unsustainable, and the United States will make a comeback. We will miss some opportunities, and one of them I mentioned is setting global standards for cryptocurrency disclosure. But I think ultimately the United States will make a comeback, and it will be a strong one.