Former CFTC Boss Says Vatican Letter Prepared Him To Be ‘Crypto Dad’

On the morning of February 6, 2018, when CFTC chairman Chris Giancarlo submitted his written remarks on Bitcoin to the Senate Banking, Housing and Urban Affairs Committee he became a celebrity among crypto fans because he warned the Senators that ignoring this paradigm shift in finance (and tech) would be a mistake and that we should embrace it in part because its adoption might be inevitable, based on his own experience at home. He proceeded to tell the story of how engaged his three children had become with the financial world as a result of their interest in Bitcoin; he concluded the regulatory reaction needed to respect the next generation’s hopes and aspirations.

Crypto Twitter went crazy, as almost 48,000 people flocked to follow him on Twitter and a meme was born, dubbing him “Crypto Dad.”

Giancarlo, a Republican who was appointed CFTC Commissioner under Obama, finished his five-year term in July 2019. Since leaving, he’s announced joining the board of a blockchain lobbying firm and another company looking to use ethereum to replace Libor. In the following interview, we hit everything from Giancarlo’s Bitcoin conversion to blockchain’s usefulness to regulators to how a letter he sent to the Vatican helped prepare him for his new role as blockchain advisor.

Excerpted from Forbes CryptoAsset & Blockchain Advisor.

Forbes: Can you share your previous title and a little bit about the career change you just went through?

Chris Giancarlo: I just completed a five-year term of service as a commissioner of the U.S. Commodity Futures Trading Commission in Washington and for the last 30 months serving as chairman of that agency.

I was nominated in August 2013 by President Barack Obama, and I was unanimously confirmed by the Senate in June 2014. And then I was nominated again by President Trump, this time to serve as chairman, in March, April 2017. And then once again unanimously confirmed by the U.S. Senate in August 2017.

I think I’m rather unique amongst senior government officials to have been both appointed by Obama and Trump and unanimously confirmed each time by the U.S. Senate. Something that a family member said: Either no one knows what my commission does, which is probably likely, or I hadn’t pissed off enough people.

So much of your career between college and today has been very well documented. I don’t want to ask you to repeat your resume. Let’s go to your discovery of Bitcoin. If you could walk me through what we used to call your Bitcoin ah-ha moment.         

Giancarlo: We were in the middle of the crisis—the Federal Reserve Bank of New York was calling around to brokerage stores like mine to understand about the credit spreads on large money center banks and investment banks. And we were explaining to them the gapping out by the minute of spreads on things like Lehman Brothers and even Morgan Stanley and Goldman Sachs. It was clear to me that regulatory authorities were frightened of the failure of these banks but had no way of quantifying the amount of risk. And at the time it was perceived that the amount of credit CDS written against Lehman Brothers was $400 billion in outstanding notional, but there was no way of knowing for sure. We now know that the amount of outstanding on Lehman Brothers made it down to about $9 billion. Had we known that then, the response to the crisis could have been entirely different. Lehman could have been easily backstopped, guaranteed or bought. And the other firms could have been backstopped in a suitable fashion.

I’m not saying that was the right choice to make, but certainly that choice would have been available if the amount of exposure could have been quantified precisely. And that’s the point. With blockchain, the amount of exposure could have been quantified precisely and immediately.

The “ah-ha moment” for me came then. And as I read about Bitcoin or read about the blockchain, it struck me that, “Wow, that is a technology with extraordinary potential—and potential that had we been able to realize back to 2008, the response could have been entirely different.”

This is a story I told in what became a famous Senate hearing when I received the title of “Crypto Dad.” I think it was early February 2018 when Jay Clayton and I appeared on the Senate Banking Committee on cryptocurrency. The back story on this is in preparing for that testimony, working with my staff at the CFTC, we prepared, about a 40- or 50-page submission of my written testimony. As had become my practice at the commission—after submitting the written testimony, I would usually, the night before, sit down and write my five-minute oral presentation.

And the reason I did it the night before is because I really wanted it to be fresh as I read it the next morning. I sat down with that 45-page written testimony and I thought, “Oh my goodness, I can’t talk about this.” And so I went in there and I did something that was more unprecedented for me than anything I’ve ever done.

I actually stopped, when it came my time to speak and the light went green, I actually looked up at the senators and said, “Senators, before turning to my prepared remarks, I’d like to talk to you not as a financial market regulator, but if you have a minute, I’d like to talk to you as a dad. The dad of some teenage and early adult children. We’ve just come back from our annual family ski trip with my siblings and their children, my nieces and nephews. And while we were there, every night the dinner table conversation was about Bitcoin.” And I said, “What’s remarkable is that my wife and I have tried to interest our own children in the stock market over the last few years as they were growing up, even opening small brokerage accounts for them in the hopes that they might trade a few bucks, learn a few things. No interest. And yet suddenly now all they’re talking about is Bitcoin. And it strikes me as we have this hearing today that what we’re seeing here is something that’s generational. We owe it to this generation to not just dismiss this interest they have as being either naïve, or foolish, or silly, but to take it seriously and recognize there’s something here, something that we’ve got to get right. We’ve got to make sure that for those who would prey on young people’s enthusiasm, there’s adequate consequences. And yet at the same time we need to design a regulatory regime, so that if there’s something here it can grow in the right way.”

Then I went back to my prepared testimony. At that time, I think I had 1,000 followers on Twitter. It exploded and within 48 hours I had something like 40,000 followers and all these memes. You know, “Crypto Dad,” and the one that my mother doesn’t like, “Bitcoin Jesus,” and all these other things. But it just was a remarkable experience, and it made me realize that there is something very generational here. A generation that lost faith in my generation through the financial crisis, that looked back and said, “Look, all these institutions that we’re supposed to trust don’t know what they’re doing,” and started looking for something that was in a sense off the traditional institutional grid, and off those rails, and into a new paradigm makes a lot of sense. And the interest in Bitcoin became very clear to me. It’s really quite diverse. From the utopian dreamers to people that may have scams and schemes, the people that just truly believe that it’s trying for something that is really mathematically based, and mechanical and not based on the whims of central bankers or could be corrupted by central bankers, or inflation or monetary policy.

Before you left the CFTC in July, what was the mood there regarding Bitcoin?

Giancarlo: The mood that we deliberately designed was one of genuine intellectual curiosity about this new asset class, about a desire to learn and understand not just by reading about it, but by directly engaging with innovators. In the time from when I started as chair to when I left, we had more than 300 engagements with individual fintech innovators. Everything from cryptocurrency to blockchain through payment systems and everything. So it was a desire to learn, to understand, to anticipate. I talked constantly to our senior staff and they talked to their staff about an exponential growth mindset, to anticipate that not just that the rate of innovation was moving at the speed of exponential growth but the rate of adoption.

Post-CFTC, what’s on your agenda?

Giancarlo: The arc of my life professionally has been within the triangle of three access points: markets, technology and law/public policy. That’s as a practicing lawyer, as a founder of a company that rolled out some of the first electronic trading systems and over-the-counter swaps—and someone who took that company into the public markets, and as a market regulator.

So, as I leave the commission, what I now have is a degree of name recognition. What I seek to do in my post-CFTC life is make available the skills and expertise I have in those three areas and the combination of those three areas for enterprises that I really believe in.

At this time in my life I have the option of getting involved in ventures, opportunities and situations where I really believe in the underlying product or service. A perfect example of that is the two recent announcements I’ve made, and you can speculate there are more to come. I have announced joining the board of the American Financial Exchange (AFX) as a full board member and then also joining the advisory board of the Chamber of Digital Commerce.

When you look at the opportunity at AFX, what’s the one thing that got you most excited about becoming a full board member?

Giancarlo: I really believe that market financial institutions need to move away from Libor because of the shortcomings in it, which are well documented, and the move away is the right thing. But I disagree with any assumption that the move away should be to another singular benchmark. I think the new secured overnight financing rate (SOFR) benchmark works well for large money center banks that have large holdings of Treasurys and other securities they can use to pledge in the repo market to fund their operations. That doesn’t work for small and regional banks that don’t have those holdings. They need an unsecured lending mechanism, and that’s what AFX’s American Interbank Offered Rate (Ameribor) is. I really believe Ameribor is actually very complementary to SOFR. I believe Ameribor is the right thing for America’s medium and small banks, and I really believe in market diversity. I’m a big fan of AFX chairman Richard Sandor. I mean, his track record played a hand in the development of interest rate futures and then building the Climate Exchange a dozen or so years ago, which was very successful. He’s a tremendous entrepreneur, visionary.

What about the nonprofit Chamber of Digital Commerce, which advocates for blockchain-friendly legislation?

Giancarlo: New technology innovations like this do need a voice. They need people who can translate what can sometimes be dense and complicated into language that policymakers who may have to go from one minute dealing with war powers resolutions to oil markets to local constituency issues and have only a short bandwidth to master something as complicated as this. And so I think I’m more poised to bring my experience to bear working as part of the advisory board for the Chamber.

Are there one or two goals that you would specifically like to see result from your work with the Digital Chamber of Commerce?

Giancarlo: I don’t have one or two projects that I was specifically focused on. In 2018 I had the opportunity to respond to a letter from the Vatican on the ethics of modern finance, which even talked about derivatives. A lot of people cited that as if you can explain the ethical basis of credit default swaps, then you have an ability to explain many things. I think of that as an example of the role I can do in helping people better understand blockchain and cryptocurrencies; breaking it down into terms that people can understand and then perhaps find comfort in it. Or if not, at least have a healthy debate without hyperbole and innuendo.

Do you have any projects in the works specifically as relates to blockchain and cryptocurrency?

Giancarlo: There are quite a few things that I’m looking at right now, but nothing that is so imminent that I can share.

Can you characterize the kinds of conversations you are having? Are you talking with startups? Or governments? Or with regulators or other nonprofits?

Giancarlo: I’ve got a lot of conversations going on with both people in the private equity community as well as the investment banking area and especially the ones that are focused on Bitcoin, who are familiar with me because of Crypto Dad and all that.

One of your colleagues at the state level, Ben Lawsky, did some great work in the state of New York with BitLicense and then went on to found his own consulting group (the Lawsky Group), which has gotten involved with numerous cryptocurrency products and blockchain efforts. Do you see yourself perhaps establishing some sort of an LLC or other organization to house all of the disparate work that you’re doing?

Giancarlo: No, I don’t see myself consulting with firms on how to interface with the government or government regulation in the area of crypto. If I were to do something of that commercial nature, it would probably be more active engagement with the firm.

I bring to the equation of executive ability, having been active in taking a company public, and being part of the active management team, and then having run a 600-employee agency. I’m still good at running things. I don’t see myself doing consultancy. I might sit on some board, but I don’t see myself going into a consultancy.

Do you have any thoughts on the central banks’ reaction to Facebook’s Libra and Facebook’s reaction to the central banks?

Giancarlo: For people of my generation, the first institutional relation they had, outside of their educational institution, was with a local bank or savings and loan. I remember my mother taking me down to the bank and I got my first passbook savings account and I would put in deposits and they entered it.

My children’s first institutional relationship outside of their school was with their social media accounts—on Facebook or an online retailer like Amazon or eBay. So, it’s not a surprise to me that those institutions would utilize the relationships with the younger generation to say, “We can be your payment system. You don’t necessarily need a bank relationship. That’s an impersonal institution that your parents use.’”

And so I think what you’re seeing is almost a generational change. I think it’s a major challenge to the traditional banking system. It’s a major challenge to the traditional banking system that global central banks use to manage their national currency and monetary policy.

I see Libra and similar ventures of that as really significant, substantial present challenges, some of which are technical, some of which are political, and some of which are simply generational.

What do you think about the Chinese government doing a fiat-backed cryptocurrency that could be used, say, to buy bread in Nebraska?

Giancarlo: I think, again, that it is a major step. It’s a considerable move. I think it probably won’t be the only move of that nature. I think there’s a logic to nation-states with a national currency moving to create a digital component of that currency.

And, again, with this generational move that desires that their payments be as convenient as on their mobile phone. Why wouldn’t there be take-up in that? I think that Western nations with reserve currencies also need to think about developing a digital component of their own currencies.

Is there any single thing floating around in the headlines nowadays that really has Chris Giancarlo’s attention more than anything else?

Giancarlo: After the Treasury market, the second-largest market is the mortgage market. There’s been a large effort made, and a recent announcement of the development of a uniform mortgage-backed security that seeks to harmonize the differences between Freddie Mac and Fannie Mae’s mortgages. It seems to me that in the efforts to develop a standard home mortgage and to take some of the arbitrage out of the different forms, it’s a perfect opportunity for the application of blockchain technology. I know the sizzle and the excitement is in things like cryptocurrency, but I’ve always been interested in the blockchain for its potential at some of the most fundamental levels of financial markets.

You can’t get more fundamental in the United States than the home mortgage market. And I think the opportunity for blockchain—in the development—in the reinvention of the American home loan market is enormous.

Can you expand on that a little bit?

Giancarlo: It’s an effort that is somewhat bipartisan. It started under the last administration and continued under this one. There’s a joint venture between Freddie and Fannie that’s been guided by the Federal Housing Finance Agency, first under Mel Watt, now under Mark Calabria.

There’s momentum and it recently announced a development of the standard mortgage protocol. But there’s a lot more work to be done.

It’s something I follow because I’m a follower of markets. It strikes me that we’re going to see over the next that blockchain is going to revolutionize markets.

You asked me for areas of sizzle, and what I’m giving as an example may be more pedestrian. But in terms of magnitude, it’s an incredibly important marketplace where I think there’s interesting opportunity for application of blockchain technology.

Anything else you want to add?

Giancarlo: One of the issues in financial crisis ten years ago was the opacity of the securitized mortgages. You bought a securitized mortgage that has 100 mortgages in it but didn’t really know exactly what was in it. The ability to do due diligence and know exactly what’s in there is another application of the blockchain. Had that been present in the crisis maybe we wouldn’t have had a mortgage crisis that kicked off a financial crisis.

Forbes: Thank you.