Forbes Interview with Former CFTC Chairman: Cryptocurrency Will Ultimately Make a Comeback in the U.S

Author: Steven Ehrlich, Forbes

Compiled by: Luffy, Foresight News

Christopher Giancarlo served as the 13th Chairman of the U.S. Commodity Futures Trading Commission (CFTC) and 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 discusses his views on the world's first regulated Bitcoin derivatives market and the upcoming transformation of financial services into a digital network.

Forbes recently interviewed Christopher Giancarlo. In this interview, we discussed the current regulatory landscape for cryptocurrencies, the prospects for new cryptocurrency legislation, whether the U.S. is falling behind other countries, and how the presidencies of Trump and Biden will affect the cryptocurrency industry in the next four years.

Forbes: How do you assess the current state of the cryptocurrency industry?

Giancarlo: A lot has happened recently. Change is occurring not just among startups and innovators, but also among traditional companies. Firms like Fnality 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, representing 98% of the world's GDP. The development of privately issued stablecoins, especially dollar-based stablecoins, is accelerating, and if this Congress achieves anything, it will likely be stablecoin legislation. I recently had dinner with Senator Tim Scott, who is optimistic about the passage of stablecoin legislation. So, I believe stablecoins will continue to evolve. I just joined the board of Paxos, which is an infrastructure provider for stablecoin development. I am very excited about this change. In the cryptocurrency space, despite frauds like Sam Bankman-Fried and the Biden administration seemingly taking a coordinated crackdown approach, Bitcoin's vitality and usage continue to grow. Therefore, decentralized tokens and value systems are still on the rise. The current crackdown stance in the U.S. is an exception, a deviation from global developments.

I think this is an anomaly in how Americans have historically treated innovation, as it seems to be confined not only to one party but to a small faction of the Democratic Party. And this situation is unsustainable. I believe that if the elections in November threaten this faction of the Democratic Party, you will see the policies that have been hostile to crypto innovation over the past few years completely abandoned.

Forbes: People believe that if Senate Banking Committee Chairman Sherrod Brown 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 kindly showed me my book "CryptoDad," and many pages were marked and underlined, which surprised me. But it also tells me that he took the time to read my book to understand cryptocurrencies. So I think he could be a real leader in this field.

Forbes: Have you ever discussed cryptocurrencies with Trump?

Giancarlo: Earlier this month, I spoke at the Washington Blockchain Summit, and I said Trump could legitimately be called the first cryptocurrency president of the United States. This is not because of anything he has said or done in the past two weeks, but because of what happened in the first year of his presidency. That is when the CFTC launched Bitcoin futures. Why do I say this? I elaborated on 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 would be priced in dollars. This is important because the dollar has many advantages, but one of its main advantages is that most of the world's industrial commodities—oil, gold, iron, as well as soybeans, corn, and wheat—are priced in dollars. Therefore, the world needs to hold dollars to purchase these key minerals, agricultural products, and natural commodities. Commodity pricing does not happen in the spot market; it happens in the futures market; the price of oil is not determined by gas stations. It is determined in trading venues like the Chicago futures market. By approving Bitcoin futures, we ensured that the price of Bitcoin, the world's first digital commodity, would be priced in dollars. Did the Trump administration say, "CFTC, go do this?" No, but did they stop us? No. Did they resist the development of a healthy, prosperous, well-regulated market like our current administration? No, as I explained in "CryptoDad," we were very careful to keep Treasury Secretary Mnuchin informed about everything we were doing, saying, "Listen, the government's policy is not to create a healthy market, nor to impose strict scrutiny regulations or principles."

If a president's term goes poorly, they will be blamed, which may be somewhat unfair, but when things go well, they will also be praised. I am not saying the White House has taken a position, but I think they could justify their stance based on this step. So, are there other possible missteps? That topic is left for others to debate, but I believe the development of Bitcoin futures, by the way, if we hadn't done Bitcoin futures at the CFTC, there would be no Bitcoin ETF today. I don't think Trump particularly cared about cryptocurrencies. I think he had his own issues, which he articulated carefully. He had to deal with immigration, oil, energy use, and other issues. So I don't think he was betting on cryptocurrencies in his campaign, but I believe history will recognize that Bitcoin futures were indeed an important step 20 years from now.

Forbes: The total market capitalization of stablecoins is currently around $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 support for PayPal and their own stablecoin. How much room is there for more private stablecoins? Do you think USDT currently holds a dominant position that cannot be shaken?

Giancarlo: There is a tremendous demand for dollars worldwide. In fact, from South America to Africa to Southeast Asia, the demand for dollars remains very strong. I have said before that, unfortunately, in many countries, the value of the local currency is even less than the paper it is printed on. 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 believe the global demand for a digital version of the dollar will be enormous because it offers practicality and efficiency.

I believe that U.S. stablecoin legislation will enable well-functioning, compliant stablecoin operators to meet global demand. Once we have well-regulated U.S. participants, the opportunity to capture market share from Tether will be significant. So I am excited. I think Circle has done a lot, and PayPal has a huge distribution network. Therefore, I believe that licensed U.S. companies now have the opportunity (hopefully based on legislation passed by Congress) to meet global demand. This will ultimately benefit the U.S.

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 think token holders will get tired of handing their money to Tether and making these people billionaires.

Giancarlo: I agree. Similarly, worldwide, if you are in a country like Argentina with historically high inflation, the demand for dollar-based yield instruments will be enormous. I don't think domestic demand is the driving force; rather, it is overseas demand. The dollar is an export product.

Forbes: Do you think stablecoin legislation will pass and become law this year?

Giancarlo: This year is an election year, and we actually have three, four, or five weeks left. Once we get to July 4th, historically, nothing happens in terms of legislation, or nothing happens after July 4th in an election year. Unless there is a crisis or market collapse like in 2008. So, I am not optimistic, but I believe that in the long run, stablecoin legislation will pass. I think there is bipartisan support for it. I believe the biggest driving force is to create more demand for U.S. Treasury securities. Sadly, one of the main driving forces is that we are a country that lives on credit cards, and we need more people to buy our debt, which is exactly what stablecoins will provide.

Forbes: Although President Biden is likely to veto SAB 121, the first piece of dedicated legislation regarding cryptocurrencies has passed both houses of Congress. What is your overall view on this? Does it reflect the current legislative atmosphere for cryptocurrencies?

Giancarlo: I think this indicates 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 sign it knowing the White House would veto it, but I think it is a very good condemnation, and you have to think that the banks support this as well. While certain parts of the banking system may resist digital asset innovation, forcing them to keep 100% of their holdings means that banks cannot participate in this innovation. So the White House may veto this, but I think it will leave them behind in the tide of history.

This is also a generational issue. This anti-crypto viewpoint often comes from people in their eighties, while the next generation does not need to accept 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 paraphrase here: "Anything invented before you turn 35 is cool and worth spending a lot of time and energy on, possibly even your career. But anything invented after you turn 35 is a dangerous suspect that needs to be suppressed." I think for those who grew up in the traditional banking system, they have a lot of generational hostility towards cryptocurrencies, and they cannot understand cryptocurrencies, viewing them as dangerous.

Forbes: What are your thoughts on the "21st Century FIT Act"? Three years ago, when you interviewed with us, you mentioned that the CFTC has historically not regulated the retail market. It seems that the CFTC has a responsibility in this act. 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, and still believe, is that the CFTC is both unique and very capable in that it primarily regulates wholesale markets rather than retail markets. It is primarily a wholesale regulatory body because it regulates the futures market, which mostly has professional traders. The CFTC does not regulate the spot market, which has a large number of retail traders. This act will give the CFTC market oversight authority to regulate the cryptocurrency spot market, not just the derivatives market. Therefore, the CFTC will, to some extent, be involved in retail market regulation. My thoughts on this have changed, partly because the CFTC already has certain areas of retail oversight, and it has proven itself capable of handling them well. Secondly, ultimately, we as a nation need to regulate the retail cryptocurrency market, and someone has to do this work. The CFTC launched Bitcoin futures back in 2017, proving it to be a very capable cryptocurrency regulatory body. I mean, today's market is deep, liquid, transparent, and well-regulated. I could even say that the only part of the Sam Bankman-Fried empire that did not collapse is the part under CFTC regulation. I believe the CFTC has succeeded in this regard; I think it is now capable of doing this job. Congress will have to provide it with the resources to do this work. With the right resources, I believe the CFTC can do this job well.

I have great respect for the SEC, but they have been reluctant to establish regulatory standards for cryptocurrency regulation. They say the rules that apply to stocks also apply to cryptocurrencies. That is like saying the same rules apply to railroads and air transport. They are both modes of transportation, but they are entirely different technologies. The SEC has established different rules for municipal bonds, debt, and stocks, and there is no reason it cannot establish a tailored set of rules for cryptocurrencies. But the SEC has been unwilling to establish these rules.

Forbes: The Chicago Mercantile Exchange (CME) is evaluating the provision of spot trading for Bitcoin and Ethereum. What do you think such a regulated market would mean for the spot and derivatives markets? Did you discuss this when you were leading the CFTC?

Giancarlo: I don't want to share the conversations from that time; I just want to say that CME is a very serious participant. They are not only a commercial training platform but also a self-regulating organization. They take compliance very seriously. They have demonstrated the ability to successfully establish a Bitcoin futures market. I think among those who can enter the spot market and establish a very confident and successful spot market, they will certainly be included. We have several very strong market operators in the U.S., like Nasdaq, Intercontinental Exchange, the 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 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 establishing a new market is a bit like capturing lightning in a bottle; it is very difficult. The fact is that for every 10 new products launched, only one or two may last and gain attention. Exchanges are constantly launching new products; they are somewhat like venture capital funds. Among every 10 products, they hope that one or two will stick. Sometimes, the key is to catch the right timing and set the parameters of the product correctly. When they launch, you will hear them promote it, and then many of those products quietly close down after three or four months. They never gained any attention. I have not looked at the products from the Chicago Board Options Exchange, nor have I talked to anyone about them. So I don't know why they did not gain attention.

Forbes: I want to ask you about Bluprynt because disclosure is important, and there is a view that the SEC is trying to force teams to submit disclosures and registration documents that are incompatible with cryptocurrencies. Do you have anything to add on this?

Giancarlo: This will be interesting. I hope to stay within the scope that Professor Chris Brummer mentioned and not go beyond it. As an investor, I should not talk about issues related to Bluprynt.

Forbes: Just in a general sense.

Giancarlo: The demand for disclosure will become part of the future of digital assets, and this is not just happening in the U.S. We have our unique way of disclosure, and other countries like Europe have now implemented the MiCA (Markets in Crypto-Assets Regulation), which requires disclosure. I do not think the U.S. will play a leading role as we have in similar worlds. We have missed the opportunity to lead in establishing global standards for cryptocurrency disclosure because we have been unwilling to set rules on how to publicly trade cryptocurrencies. I think it is likely to be Europe that has now established laws and has the opportunity to set global standards. I believe the opportunity for Bluprynt is not limited to the U.S.

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; some people think Memecoin investors are foolish and that these tokens waste everyone's time and energy. I do believe they reflect the spirit of the times we are currently in. By this spirit, I mean the U.S. printing money indiscriminately, making it impossible for many young people to own a home. Coupled with the massive promotion of gambling, not just by commercial actors like the NFL, but also states and governments promoting it through lotteries with disclaimers attached. Beyond that, you can bet as much as you want. However, somehow, we should criticize young people for speculating on Meme stocks as if this gambling is irresponsible, while betting on football games or state lotteries is responsible gambling? I think Meme stocks and Meme coins are products of our time.

Forbes: Do you have any concluding thoughts?

Giancarlo: I believe the dam of U.S. resistance to this innovation in cryptocurrency is about to break. Whatever happens in November, it will break. Once the dam breaks or the gates are half open, it will be fully open. The reason I believe this is that I have traveled globally from London to Tokyo, Dubai, Singapore, and Paris. The whole world is saying, "Let's cultivate our own crypto seeds now and work to make them take root." All these very smart and savvy regulators in these countries believe that the U.S. 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 there is some permanence within their jurisdiction. I think they are right. They have seen the U.S. do this before. Winston Churchill once said that the U.S. will always do the right thing after trying all the alternatives. I think we have been trying alternatives. These measures are unsustainable, and the U.S. will come back. We will lose some opportunities; one I mentioned is establishing global disclosure standards. But I believe that ultimately, the U.S. will come back, and it will come back strong.