Forbes interviews former CFTC chairman: Cryptocurrency will return to glory in the United States

Forbes: While there is a good chance that President Biden will veto SAB 121, the first piece of legislation specifically targeting cryptocurrencies has passed both houses of Congress. What is your overall view on this? Does this reflect the current legislative climate for cryptocurrencies?

Giancarlo: I think it shows that Elizabeth Warren’s faction 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 have signed it because he knew the White House would veto it, but I think it was a very good condemnation, and you have to think that the banks are behind this as well. While some parts of the banking system may resist digital asset innovation, forcing them to hold 100% of their holdings effectively means that banks can’t participate in this innovation. So the White House could veto this, but I think that would leave them out in the lurch of history.

It’s also a generational issue. This anti-cryptocurrency 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 toward cryptocurrencies among 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 interviewed us three years ago, you mentioned that the CFTC historically did not regulate 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 now, that the CFTC is both unique and very capable, is that it primarily regulates wholesale markets rather than retail markets. The reason it is 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 itself to be able to 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 itself to be a very capable cryptocurrency regulator by launching Bitcoin futures back in 2017. I mean, the market today is 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 succeeded in that regard; I think it's now up to the task. Congress is going to have to give it the resources to do that. With the proper resources, I think the CFTC can do that very well.

I have a lot of respect for the SEC, but they have been reluctant 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 airlines. They're both vehicles, but they're very different technologies. The SEC has different rules for municipal bonds, debt, and stocks, and there's no reason it can't have a tailored set of rules for crypto. But the SEC has been reluctant 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 U.S., like Nasdaq, Intercontinental Exchange, the New York Stock Exchange, and others like the Chicago Board Options Exchange. But I think CME is a very good candidate.

Forbes: An interesting counterargument is that its competitor, the Chicago Board Options Exchange (CBOE), recently closed 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 last and gain traction. Exchanges are constantly launching new products, they are a bit like venture capital funds. For every 10 products, they hope that one or two will stick. Sometimes it's about getting the timing right and setting the parameters of the product right. You hear about them when they launch, 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's 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's going to be interesting. I want to stay within the scope of what 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 have missed the opportunity to lead in setting global standards for crypto disclosure because we have been reluctant to set the rules for how cryptocurrencies can be traded publicly. I think it will likely be Europe, which now has the law in place, that has the opportunity to set a global standard. I think the opportunity for Bluprynt is not limited to the U.S.

Forbes: Besides Bitcoin and Bitcoin DeFi, one of the big themes this year has been Memecoins. What do you think of them?

Giancarlo: I’m not a critic, and some people think Memecoin investors are stupid and that these tokens are a waste of time and energy. I do think they fit the spirit of the times we’re in right now. By that spirit, I mean the reckless money printing in the U.S. that’s keeping many young people from owning 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. Beyond that, you can bet as much as you want. 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 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 U.S. is going to turn around in the next 24 months and people are going to flock to Brooklyn, Silicon Valley, Austin, Texas. They want to make sure that they have some kind of staying power in their jurisdictions. I think they’re right. They’ve seen the U.S. do this before. Winston Churchill said that the U.S. will always do the right thing after having tried all the alternatives. I think we’ve been trying the alternatives. These measures are unsustainable and the U.S. will come back. We’re going to lose some opportunities, and I mentioned one of them was setting global disclosure standards. But I think that ultimately the U.S. will come back and come back strong.

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