Crypto DeFined Recap: Former CFTC Chair Chris Giancarlo Has Seen this Movie Before
J. Christopher Giancarlo has witnessed seismic shifts in the crypto industry before, including the initial-coin-offering boom that turned into an epic bust in 2018.
He also had a front-row seat to these watershed moments. From 2014 to 2019, Giancarlo was with the Commodity Futures Trading Commission, which regulates the U.S. derivatives market, including futures, swaps, and options, initially as a commissioner during the Obama Administration, then as chair under Donald Trump. Giancarlo left his mark at the CFTC with the agency's oversight of the first bitcoin futures contract launch.
Giancarlo, now a senior counsel at the law firm Willkie Farr & Gallagher, says the rise and fall of Sam Bankman-Fried and his crypto empire borders on "Shakespearean," a reference to the many twists and turns, which continue. The hard crash, he further asserts, is a sobering moment for the industry -- tough words, especially coming from Giancarlo. Within the industry, at least to date, Giancarlo has been known as “Crypto Dad” because of his enthusiastic support for blockchain technology. The nickname also made it into the title of his book: “CryptoDad: The Fight for the Future of Money.”
Giancarlo, who was knighted by the French government in June -- in part for recognizing “the potentials of crypto finance” -- spoke with Crypto DeFined on Nov. 10 about the implications of the FTX collapse. He also opined on what’s next for the crypto industry, which has lost more than a third of its value over the past year.
Five takeaways from Giancarlo’s interview (edited for clarity):
—Expect more crypto meltdowns. “When contagion like this happens, it finds a target… then it goes looking for others,” he said. “The fire is raging, and there will be other houses burned because of it.“
—Crypto industry needs clear regulations. FTX’s collapse "will spur regulation, which is a good thing,” said Giancarlo. “I have long been an advocate for a comprehensive and bespoke response to crypto.”
But Congress needs to be measured in its approach, he warns: “While some people like to regulate in a crisis because that actually brings out the immediacy that’s needed… you’re liable to get some things wrong." Giancarlo's advice: "Let’s get it right. Let's do it with urgency, but let’s not rush it. This is a very human story about a lot of mistakes made. It doesn’t indict the entire industry (and) it doesn’t indict this entire innovation, which truly is a new and very promising architect of banking, finance and money itself.”
—Exchange operators should not simultaneously manage hedge funds. “There’s a reason why the Nasdaq and NY Stock Exchange don’t also operate hedge funds, and there’s a reason why hedge fund operators don’t operate trading platforms. The temptation to manage one with the proceeds of the other is a great temptation.”
—How crypto is classified should depend on its use. Whether a digital asset is a commodity or a security should depend on how it’s being used, and which regulator has oversight over it, said Giancarlo. “I don’t start with the position that crypto is a security. I don’t start with the position that crypto is a commodity. I start with the position that crypto is an algorithm.”
—Crypto collapses, no matter how dramatic, don't mean that the industry is rife with systemic risk. “You really have to ask yourself: Is a trillion dollar market. . . truly a systemic risk in a country that has $30 trillion in debt alone?" His point: "FTX is not a systemic risk." As for whether the entire crypto sector is a systemic risk, as some are now suggesting, "I would (also) question" that.
Sums Giancarlo: “Certainly, critics of crypto are going to use (the FTX collapse) as a poster child for everything they see wrong in this ecosystem. But at the same time, I think it’s important to put this in (historical) context. We’ve seen larger -- much larger -- collapses.”
Watch the replay here.