Original author: Steven Ehrlich, Forbes
Original translation: Luffy, Foresight News
Former CFTC Chairman Christopher Giancarlo is optimistic about the prospects of cryptocurrencies in the United States
Christopher Giancarlo served as the 13th Chairman of the U.S. Commodity Futures Trading Commission (CFTC). He is also a member of the U.S. Financial Stability Oversight Council, the President’s Working Group on Financial Markets, and the Executive Committee of the International Organization of Securities Commissions. Giancarlo is also the author of CryptoDad-The Fight for the Future of Money, which tells his views on the world’s first regulated Bitcoin derivatives market and the upcoming digital network transformation of financial services.
Forbes recently spoke with Christopher Giancarlo. In this interview, we discussed the current regulatory landscape for cryptocurrencies, the prospects for new crypto legislation, whether the U.S. is lagging behind the rest of the world, and how the Trump and Biden presidencies will impact the crypto industry over the next four years.
Forbes: How do you evaluate the current state of the cryptocurrency industry?
Giancarlo: There's a lot going on lately. This change is happening, not just with startups and innovators, but also with traditional businesses, with companies like Fnaility in the UK tokenizing central bank deposits, and China's digital yuan already having 260 million wallet users. The Atlantic Council estimates that 138 countries are working on central bank digital currencies, and these countries account for 98% of the world's GDP. The development of privately issued stablecoins, especially dollar-based stablecoins, is accelerating, and if there is anything that this Congress accomplishes, it will likely be stablecoin legislation. I recently had dinner with Senator Tim Scott, and he was optimistic about the passage of stablecoin legislation. So, I believe stablecoins will continue to develop. I just joined the board of Paxos, which is an infrastructure provider for stablecoin development. I'm very excited about this change. In the cryptocurrency space, despite fraud like Sam Bankman-Fried and what seems to be some kind of coordinated crackdown by the Biden administration, Bitcoin continues to grow in vitality and usage. So decentralized tokens and value systems continue to grow. The current suppressive stance of the United States is an exception, and this is an exception in global development.
I think this is an anomaly in the way Americans historically approach innovation because it seems to be confined not just to one party, but to a small wing of the Democratic Party. And it's unsustainable. I think if the November election threatens that wing of the Democratic Party, you're going to see the policies of the last few years that have been hostile to crypto innovation completely abandoned.
Forbes: What would people think if Senate Banking Committee Chairman Sherrod Brown was replaced by Tim Scott, that would pave the way for more crypto-friendly legislation?
Giancarlo: I think Tim Scott is very enthusiastic about the potential of this innovation. He was kind enough to show me my book CryptoDad, and I was flattered to see so many pages marked up and underlined by him. But it also told me that he took the time to read my book to understand cryptocurrencies. So I think he can be a real leader in this space.
Forbes: Have you talked to Trump about cryptocurrency?
Giancarlo: Earlier this month, I gave a speech at the Washington Blockchain Summit, and I said that Trump could rightfully be named the first crypto president of the United States. This is not because of anything he has said or done in the last two weeks, but because of what has happened in the first year of his presidency. And that is the launch of Bitcoin futures by the CFTC. Why do I say that? I laid this out very carefully in my speech, but I will say that by the CFTC approving Bitcoin futures, we have ensured that the world's first digital commodity will be denominated in U.S. dollars. This is important because the U.S. dollar has many advantages, but one of its main advantages is that most of the world's industrial natural commodities, oil, gold, iron, and soybeans, corn, and wheat are denominated in dollars. So the world needs to hold dollars to buy these critical minerals, agricultural, and natural commodities. Commodities are not priced in the spot market, they are priced in the futures market; the price of oil is not determined at the gas station. It is determined in trading venues such as the Chicago Board of Trade. By approving Bitcoin futures, we have ensured that the price of the world's first digital commodity, Bitcoin, will be denominated in U.S. dollars. Did the Trump administration say, "CFTC, go do this?" No, but did they stop us? No. Are they as resistant to developing a healthy, thriving, well-regulated market as our current administration is? No, as I explained in CryptoDad, we were very careful to let Secretary Mnuchin know everything we did, “Look, the policy of this administration is not to create a healthy market, it’s not to have strict scrutiny regulations or principles.”
If things go badly during the president's term, they get blamed, which is probably unfair to some extent, but they also get credit when things go well. I'm not saying that the White House has made a position, but I think they can make a case based on this step. So, are there other possible missteps? I'll leave that for others to debate, but I think the development of Bitcoin futures, by the way, if we hadn't done Bitcoin futures at the CFTC, there wouldn't be a Bitcoin ETF now. I don't think Trump is particularly concerned about cryptocurrencies. I think he has his own problems, and he has carefully laid them out. 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 20 years from now history will recognize that Bitcoin futures were indeed an important step.
Forbes: The total market cap of stablecoins right now is about $150 billion. Tether accounts for 80% of that, and then there’s USDC and all the other stablecoins. Paxos was a big player before BUSD got shut down. I know they provide the backend for PayPal and their own stablecoin. How much room is there for more private stablecoins? Do you think USDT is currently so dominant that it can’t be shaken?
Giancarlo: There is a very strong demand for the dollar around the world. In fact, from South America to Africa to Southeast Asia, the demand for the dollar is still very strong. I have said before that unfortunately, in many countries, the value of the national currency is not even as good as the paper. The dollar is still a very important hard currency. The problem with the dollar is that it is difficult to obtain in many parts of the world. Therefore, I think the global demand for a digital version of the dollar will be huge because of its practicality and efficiency.
I think the passage of stablecoin legislation in the U.S. will allow well-run, compliant stablecoin operators to meet global demand. Once you have well-regulated U.S. players, the opportunity to take market share from Tether is going to be very large. So I'm excited. I think Circle has done a lot, PayPal has a huge distribution network. So I think there's an opportunity now for licensed U.S. companies, hopefully under legislation passed by Congress, to meet global demand. That's ultimately good for the U.S.
Forbes: What do you think is the balance between yielding stablecoins and non-yielding stablecoins? I know there is legislation going on about non-yielding stablecoins, but at some point I think token holders will get tired of giving their money to Tether and making these people billionaires.
Giancarlo: I agree. Likewise, around the world, if you're in a country like Argentina where inflation is at historically high levels, the demand for dollar-based yield instruments is going to be tremendous. I don't think domestic demand is the driver, it's overseas demand. The dollar is an export.
Forbes: Do you think stablecoin legislation will be passed and become law this year?
Giancarlo: It's an election year, and we're really three, four, or five weeks away. Once we get to July 4, nothing happens in terms of legislation, or historically, nothing happens in election years after July 4. Unless there's a crisis or a market crash like we saw in 2008. So, I'm not bullish, but I believe that in the long run, stablecoin legislation will pass. I think there's bipartisan support for it. I think the biggest driver is creating more demand for U.S. Treasuries. Sadly, one of the main drivers is that we're a country that lives on credit cards, and we need more people to buy our debt, and that's what stablecoins will provide.
Forbes: Despite the strong likelihood that President Biden will veto SAB 121, the first cryptocurrency-specific legislation has passed both houses of Congress. What are your overall thoughts on this? Does it reflect the current legislative climate for cryptocurrency?
Giancarlo: I think it shows that Elizabeth Warren is a shrinking iceberg. When Senate Majority Leader Chuck Schumer signed the condemnation of 121, it was a very good statement. Now, Machiavelli might say he could sign it because he knew the White House would veto it, but I think it was a very good condemnation, and you have to think the banks supported this as well. Even though some parts of the banking system might resist digital asset innovation, forcing them to hold 100% of their holdings effectively means that the banks can't participate in this innovation. So the White House might veto this, but I think that leaves them out in the lurch.
It’s also a generational issue. This anti-crypto view often comes from octogenarians, and the next generation doesn’t need to embrace this innovation. One of my favorite authors is Doug Adams, who wrote the Hitchhiker’s Guide to the Galaxy series of books. Adams has a famous quote, and I’m going to paraphrase it here, “Anything invented before you’re 35 is cool and worth a lot of your time and energy, and maybe even your lifelong career. But anything invented after 35 is a dangerous suspect and needs to be suppressed.” I think there’s a lot of generational hostility to cryptocurrencies for people who grew up in the traditional banking system, who can’t understand cryptocurrencies and think they’re dangerous.
Forbes: What are your thoughts on the 21st Century FIT Act? When you spoke to us three years ago, you mentioned that the CFTC historically did not regulate the retail markets. It seems that the CFTC has a responsibility in this bill. How will this play out?
Giancarlo: My thoughts on this are evolving. One of the things that I thought about when I was at the CFTC a few years ago, and I still think that makes the CFTC both unique and very capable, is that it primarily regulates wholesale markets rather than retail markets. The reason it's primarily a wholesale regulator is that it regulates futures markets, which for the most part have professional traders. The CFTC does not regulate spot markets, which have a large number of retail traders. This bill would give the CFTC market regulatory authority to regulate the cryptocurrency spot market, not just the derivatives market. So the CFTC would be somewhat involved in retail market regulation. My thoughts on this have evolved, in part because the CFTC already has certain areas of retail regulation, and it has proven that it can handle them very well. Secondly, at the end of the day, we as a country need to regulate the retail cryptocurrency market, and someone has to do that job. The CFTC has proven to be a very capable cryptocurrency regulator by launching Bitcoin futures back in 2017. I mean, the markets today are deep, liquid, transparent, and well-regulated. I would even go so far as to say that the only part of the Sam Bankman-Fried empire that hasn't collapsed is the part that's under the CFTC's supervision. I think the CFTC has been successful in that regard; I think it is now up to the task. Congress is going to have to provide it with the resources to do that. 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 set regulatory standards for cryptocurrency regulation. They say that the same rules that apply to stocks apply to crypto. That's like saying the same rules apply to railroads and air transportation. They are both means of transportation, but they are very different technologies. The SEC has different rules for municipal bonds, debt, and stocks, and there is no reason why it can't have a tailored set of rules for crypto. But the SEC has been unwilling to set those rules.
Forbes: The Chicago Mercantile Exchange (CME) is evaluating offering spot trading in Bitcoin and Ethereum. What impact do you think such a heavily regulated market would have on the spot and derivatives markets? Did you discuss this issue when you led the CFTC?
Giancarlo: I don't want to share the conversations that took place, other than to say that CME is a very serious player. They are not only a business training platform, they are a self-regulatory organization. They take compliance very seriously. They have demonstrated the ability to successfully build a bitcoin futures market. I think they would certainly be among the players that could come into the spot market and build a very confident and successful spot market. We have several very strong market operators in the United States, like Nasdaq, Intercontinental Exchange, NYSE, and others like CBOE. But I think CME is a very good candidate.
Forbes: An interesting counterargument is that competitor CBOE recently shut down its spot market. What does this mean for CME’s prospects?
Giancarlo: I would say that building a new market is a bit like catching lightning in a bottle. It's very difficult. The fact is that for every 10 new products that are launched, maybe only one or two will stick around and gain traction. Exchanges are constantly launching new products, and they're a bit like venture capital funds. For every 10 products, they hope that one or two will stick around. Sometimes it's all about getting the timing right and setting the parameters of the product right. When they launch, you hear about them, and then many of them quietly shut down three or four months later. They never gain any traction. I haven't seen the CBOE product or talked to anyone about it. So I don't know why it didn't gain traction.
Forbes: I wanted to ask you about Bluprynt because disclosure is important and there is a perception that the SEC is trying to force teams to file disclosure and registration documents that are incompatible with cryptocurrency. Do you have anything to add to that?
Giancarlo: That will be interesting. I want to stay within the boundaries that Professor Chris Brummer said and not go beyond that. As an investor, I shouldn't talk about Bluprynt.
Forbes: Just in a general sense.
Giancarlo: The need for disclosure is going to be part of the future of digital assets, and this is not just happening in the U.S. We have our own unique approach to disclosure, and other countries like Europe have now implemented MiCA (Market for Crypto Assets Legislation) that requires disclosure. I don’t think the U.S. will lead in the way that we would in a similar world. We’ve missed the opportunity to lead in setting global standards for crypto disclosure because we’ve been reluctant to set the rules for how cryptocurrencies can be traded publicly. I think it’s likely to be Europe, which now has the law in place, that has the opportunity to set global standards. I think the opportunity for Bluprynt is not limited to the U.S.
Forbes: In addition to Bitcoin and Bitcoin DeFi, a big theme this year is Memecoins. What do you think of them?
Giancarlo: I'm not a critic, and some people think that Memecoin investors are stupid and that these tokens are a waste of time and energy. I do think that they fit the spirit of the times that we're in right now. By that spirit, I mean the reckless money printing in the United States that has made it impossible for many young people to own a home. Add to that the massive promotion of gambling, not just by commercial actors like the NFL, but also by states and governments through lotteries, with a disclaimer that says, "Betting as much as you want is fine." And yet, somehow, we should criticize young people for speculating in meme stocks, as if that kind of gambling is irresponsible, but betting on football games or betting on the state lottery is a responsible gamble? I think meme stocks and memecoins are a product of our times.
Forbes: Do you have any conclusion?
Giancarlo: I think the dam in the United States against this innovation is going to break. It’s going to break no matter what happens in November. Once the dam breaks or the gate is ajar, it’s going to open wide. I believe this because I’ve traveled around the world from London to Tokyo to Dubai to Singapore to Paris. The world is saying, “Let’s plant our crypto seed now and try to get it to take root.” All the very smart, savvy regulators in these countries think that the United States is going to turn around in the next 24 months and people are going to flock to Brooklyn, Silicon Valley, and Austin, Texas. They want to make sure that there’s some kind of staying power in their jurisdictions. I think they’re right. They’ve seen the United States do this before. Winston Churchill once said that the United States always does the right thing after having tried all the alternatives. I think we’ve been trying the alternatives. These measures are unsustainable, and the United States will come back. We will lose some opportunities, and I mentioned one of them is to set global disclosure standards. But I think that ultimately the United States will come back and come back strong.
