Bankless - 92 - The Fight for the Future of Money | CryptoDad Chris Giancarlo

Episode Date: November 15, 2021

Chris Giancarlo, aka CryptoDad, is the former chair of the CFTC, the governing body that oversees Commodity Futures Trading. He's now an advisor in crypto, a senior advisor at a law firm, and of course, a father. This conversation circles around many of the topics Chris covers in his new book, 'The Fight for the Future of Money.' We move through the specifics like the differences between Futures and Spot ETFs, but then we turn towards the big picture. What are American values? How do we instantiate them into our digital institutions? America has a remarkable history of saying 'yes,' and the stakes couldn't be higher as America decides whether to say yes to credibly neutral, decentralized protocols. ✨ EPISODE DEBRIEF ✨ https://shows.banklesshq.com/p/exclusive-debrief-the-fight-for-the  ------ 📣 DHARMA | From Dollars to DeFi in a Tap! https://bankless.cc/dharma  ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: 💰 GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini  🔀 BALANCER | EXCHANGE & POOL ASSETS https://bankless.cc/balancer  👻 AAVE | LEND & BORROW ASSETS https://bankless.cc/aave  🦄 UNISWAP | DECENTRALIZED FUNDING http://bankless.cc/uniswap  ------ Topics Covered: 0:00 Intro 6:30 Chris Giancarlo 10:06 CryptoDad & BTC Futures 18:27 Facing Resistance 22:13 Fear & Regulation 28:02 Vindicated 31:55 Futures vs Spot ETFs 41:29 Liquidity & Price 47:00 ETH Futures 53:09 Trust in Money 58:00 Getting the Values Right 1:04:43 Will People Care? 1:10:31 The CFTC’s Approach 1:16:03 Encouraging Innovation 1:21:31 Regulatory Clarity 1:26:44 Free Markets & Free People 1:33:56 The Crypto Dad 1:37:37 Closing & Disclaimers ------ Resources: CryptoDad on Twitter: https://twitter.com/giancarloMKTS?s=20  The Fight for the Future of Money: https://www.chrisgiancarlo.org/book  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, what an episode, Christian Carlo, former CFTC chair, but also Crypto Dad. And if that wasn't an episode, like spending an episode with your dad, Crypto's Dad, I mean, I don't know what was. it could not have been better. What were some of your thoughts and takeaways coming out of this? Yeah, it was a combination of one of the most heartwarming, wholesome episodes that I've ever listened to

with very concrete, very, this high wisdom, actionable insights, right? It's the most dad episode possible. Like, here's how you live a life. Here's how you, like, principles. Here's some actions. Here's some really, really good advice. Also, I just feel like I got this virtual, like, pat on the head at the end of the show. I was like, all right, like millennial generation, younger generations, you guys got this,

you guys can take it from here. So, like, Chris, just really spanning the gamut of just like being a good regulator, regulating an entire nation, he's no longer regulator, but once was. And then also just words of encouragement. And it's just extremely refreshing. It's already been one of my favorite episodes. Yeah, you know what? It's kind of like a good dad looks out for his kids, right?

I mean, I don't want to overuse this analogy, but it really felt like the whole vibe of the episode. And his statement in Congress that, earned him the moniker crypto dead. We owe it to this generation to take crypto seriously. Think about that. We owe it to this generation. How refreshing is that to hear in the halls of Congress, like that there is some accountability for future generations and that we should go investigate this asset class and understand it more because they see something in it. So let's try to understand that before we dismiss it, before we kill it, before we try to crush it. Let's try

to understand that first. And that is something that I think everyone feels is missing from the halls of power today. You're not hearing what we're saying, right? You're not listening to us. You're not understanding why this asset class has gone from zero to three trillion dollars in the past 11 to 12 years, right? So why don't you listen for a bit? And that was his message that he took four years ago in 2017. And then he's been an advocate for Cryptosense. So he just had some fantastic insights. We talked about CFTC versus the SEC. We talked about this new money system and how important it is to imbue and embed our values inside of it. We talked about the nature of money. And Chris has an excellent fundamentals, foundational understanding of like what money is as a societal construct.

So many things to unpack here. Oh, we also talked about like, you got in this discussion with him about futures, right? So I'm like, that was just an educational course right there on understanding kind of commodities futures and how it impacts the reserve currency status of the dollar and the price of the underlying and all of these topics. So just an incredible episode. Chris is absolutely somebody who does not miss the forest for the trees. And I think that is the big discrepancy between regulators and people leaders like Chris and one of our biggest frustrations about the world of regulatory agencies, where regulatory agencies are orboric. They are a snake biting its own tail. They are doing regulation for regulation's sake just because that's what they do.

When you're a hammer, everything is a nail. And Chris is not a hammer. Chris, not just crypto. I find it fascinating that he came into the world of crypto, not interested in crypto, but realized that there was something here and he needed to fight for it. So again, Chris understands what this industry means and how it impacts the world and does not come in with his preconceived notions about how financial markets should look like and how they should be regulated. Yeah, we didn't use this term during the podcast, but like after the podcast reflecting, it's like what's a first principles regulator look like? Right. So let's talk about the laws that went into place in the 1930s and 1940s. There were principles behind these laws, and some of those principles

are valid and some of them are good, but they don't necessarily manifest in the same way in the 2020s as they did the 1930s and the 1940s. So boiling it down to what's the purpose of these regulations in the first place? And there seem to be few in government who think like that. But that's really why I think the CFTC has kind of shined and had a great role to play for crypto in this. Anyway, so many things we unpack here. As always, guys, If you are a bankless premium subscriber, you get to hear David and I's recordings after this podcast where we do a debrief on the entire episode and drop some of our thoughts and extra insights and some fun stories after the podcast.

So make sure you become a premium listener and you can get access to that on the bankless premium feed. David, anything else? Nothing from me. Let's go ahead and get right into the episode with Chris Giancarlo, Crypto Dad, right after we talk about some of these fantastic sponsors that make this show possible. This is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure.

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No matter how big or small your idea is, you can apply for a UniGrant at Unigrants.org. and help steer Uniswap in the direction that you think it should go. That's exactly what we did to get Uniswop to be a sponsor for Bankless, and you can do the same for your project. Thank you, Uniswap, for sponsoring Bankless. Gemini is the world's most trusted cryptocurrency exchange. I've been a customer of Gemini since I first got into crypto in 2017, and it's been my main exchange of choice to make my crypto buys and sells.

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on all of your purchases, but paid to you in your preferred crypto asset. When I get my Gemini credit card, I'm going to make sure that I get my cash back in ETH. So whenever I buy something, I get a little bit of ETH bonus back to me at the same time. You can open up a free account in under three minutes at Gemini.com slash go bankless. And if you trade more than $100 within the first 30 days after sign up, you'll be gifted a free $15 Bitcoin bonus. Check them out at gemini.com slash go bankless. Bankless Nation, we are super excited about our next guest. This is Chris John Carlo. He is the former chair of the CFTC. He's an advisor in the crypto industry. He's a senior counsel at a law firm. You probably know him as Crypto Dad, though. That's the way I know Chris John Carlo. He's written a book

with the same name. It's called Crypto Dad, the Fight for the Future of Money. I've read some of this. It is absolutely fantastic. Chris, it's a pleasure to have you on Bankless. How are you doing today, sir? Doing great, Sean. Thank you so much. for that warm introduction. It's great to be with you. I love your show. And for me, it's a treat to finally be on it. Well, you are very welcome. It's a pleasure to have you. I want to maybe start by setting this stage here. You titled the book Crypto Dad. And I think that's the way many in the Bankless Nation and the crypto audience know you. But let's start with that story because this was a moniker that you obviously didn't bestow upon yourself. Like you didn't

say, I am Crypto Dad. Hello, everyone. My name's Chris. This is something that the industry gave you, similar to Hester Purse, many people call her Crypto Mom in the Indie. industry. And I think it's because you were the person who stood up against a tremendous amount of ridicule when the CFDC was talking about making Bitcoin futures happen four years ago, right? This is not a popular idea at the time. You also stood up in front of Congress, and you use this line, which I think the crypto industry absolutely loves. We owe it to this generation, owe it to the younger generation to respect their interest in the asset. class. Guys, imagine that. Imagine Congress owing something to future generations. This is why you have

earned the title of crypto dead, I think, in crypto circles. But can we talk about this line? Because I read that chapter in your book, or there's a title in your book called We Owe It to This Generation. Can you talk a little bit about that? What do you think Congress and those in the halls of power owes this generation, owes the future generation? Yeah. So let me tell you actually the backstory, and then we'll talk a little bit about what I really think Congress does owe this generation. In 2017, I was chairman of the CFTC and by the way, just quickly, I didn't go to the CFTC to do crypto. I went there to help clean up the reforms of the swap market, which I'd worked in for a decade and a half beforehand.

But, you know, in life, you go to do something and life happens. Other things happen. And you can either say, I'm not going to focus on it or you can adjust. And in my case, it was, let's adjust. Let's learn everything we can about this new asset class. Let's understand it. We set up Lab CFTC in the spring of 2017. And I said, master crypto.

I appointed Dan Gorfine to run it. And I said, start teaching us as a commission this new asset class. To the point where in the summer of 2017, the five member commission were actually doing mock Bitcoin mining exercises. in our board room to understand what mining was all about. Anyway, in the fall, we were approached by two of our biggest exchange operators, Chicago Mercantile Exchange and the Chicago Board Options Exchange about listing Bitcoin Futures. And as we started processing those applications, we were getting huge resistance. There was a full-page ad in the Wall Street Journal taken out,

addressed to me saying, please don't go forward with Bitcoin Futures, if you do, it will destroy the economy. Wait, who took out this ad? Who's this from? Thomas Pederfe, the CEO of Interactive Brokers. What's his skin in the game there? Why did he care so much about this? Well, so he wanted to see the margin fund, the collateral fund, basically segregated for

Bitcoin futures against all other asset classes. His worry was that if there was a default in Bitcoin futures, the call on that collateral could unwind all of the other instruments that are traded in the same clearinghouse. Now, the fact of the matter is the whole idea of clearing is that you commingle all assets. So if one asset classes up, another one is down, you've got a portfolio margining effect. His idea, though, it should be segregated, otherwise it would cause harm to the financial system. Wow. A couple of things.

I explained this in the book. We actually did an analysis of that. We came to a different economic conclusion as to its viability. But moreover, we actually don't have the... the power as a commission to tell clearing houses, you need to segregate this, you can commingle that. So anyway, those are things that I explained in the book. But that's just one example of the resistance. The futures industry association, the trade association for the entire futures industry, wrote to us and said, don't go forward with this, at least on the current timetable.

And then we had regulators both here in the U.S. and in Europe and in Asia calling saying, if you do this, you will legitimize Bitcoin. And that was one eureka moment for me, because I said to myself, wait a minute, I'm an unelected bureaucrat. It's not for me to legitimize a legal asset class or not legitimize it. If Congress wants to do it fine, that's not my job. And in fact, it started troubling me because I thought the only thing that's going to legitimize an asset class is the marketplace itself.

Right. Right. If you've got a marketplace where people can both go law, and go short, that's the best either legitimacy or illegitimacy. Thousands of new products are launched every year or hundreds at least. Many of them never make it because the market doesn't legitimize them, not because bureaucrats don't legitimize them. And so it was my thought that, you know what, the best test of this is let the market proceed. And so we did not block Bitcoin futures. We announced we were going forward on December 1st, 2017. The products launched, the markets,

resolve the price itself, but not long after that, and this is how the Bitcoin, the Crypto Dad came about, I got a summons from the Senate Banking Committee to appear in front of the committee. And clearly it was to be called on the carpet to basically justify everything we had done. And so in preparing for that hearing, we prepared, as you do, as a chairman of an agency, a lengthy briefing document. It must have been like 65 pages detailing every step we had made in, in going forward with Bitcoin futures. We submitted that a week before.

And then the night before the hearing, as I'm preparing for it, I'm thinking about if you've ever watched one of these hearings, the witnesses have these little clock, little game clocks on your dais in front of you. And they go from red to yellow to green. And when they go green, they start counting down from five minutes to zero. And if you're still talking when it goes zero, boom, the red light goes on, the gavel comes down.

So I'm trying to condense 65 pages of text into a five-minute, 500-word testimony. And I said, forget it. I'm never going to do this. So I'm going to just approach this entirely differently. So that morning, when the light went green on my desk, I basically pushed my papers away and said, senators, I know I'm here as the chairman of the CFTC, but if you'll allow me, I just want to talk to you as a dad. Wow. And I explained to them that during our annual family ski trip that I do every year with my

brothers and all our kids, every night after skiing, all my kids in their 20s, all my nieces and nephews wanted to talk about was Bitcoin. They had heard that we had greenlighted Bitcoin futures. They wanted to understand it. Now, these are the same kids that we had tried to interest in the stock market for years, you know, with basically no interest. But suddenly the interest and it dawned on me that there's a real generational thing going on here. And so I said to the senators, just what you said. I think we owe it to them to get this right, not to dismiss it as some sort of, you know, childish fantasy as I think perhaps there's a tendency to do on some people in my generation, but to actually open our eyes to it and say,

what's going on here, really understand it, and get the regs right so it thrives as opposed to being strangled in its infancy. Anyway, so having said that, I want to talk to you as a dad, suddenly my Twitter handle exploded and they were calling me Crypto Dad, and some people saying, I want to be adopted by you. It was so much fun. And it was actually a few months later that Hester Purse was confirmed. And then in one of her first statements, she referenced my testimony and then she became CryptoMaw. Yeah. And she is also amazing to you. I've got some memes that I'm showing on the screen. This is you as like the last fudbender. I believe memes, courtesy of crypto Twitter coming out. And this is another one. If you go into Twitterverse,

you'll hear a term hoddle. Did you actually say that? I did. You said the huddle. Yeah, and I said my niece is a hoddler. That's hilarious. And, you know, it's funny because, I mean, I was there and John Kennedy, who's a senator, who's a really fun guy, he said, what is all you're talking about? I still write with a quill pen. The fact of the matter is he's somebody actually starting to get it.

But, you know, it was an opportunity to talk to Congress in a very fresh, direct way without just a lot of bureaucracy. Chris, I remember listening to that talk, and I remember posting on my Facebook because this is where my parents and the older side of my social connections, that's where they were going to listen to this. And I remember posting, for the first time, a millennial, I actually feel heard and represented by our leaders. And that is what started to actually have some faith that maybe we actually could get this whole thing right. So thank you for representing us in a time where, you know, this is on the heels of the 2017 mania, which wasn't crypto's best people. But people like you understood the fundamentals. But you also talked about all this resistance that came. And the fact that you were even summoned to the Housing, Banking, Urban Affairs Committee in the first place to, like, answer for your accepting of Bitcoin in the CFTC and also all the other responses from the private sector is concerning. Why do you think you got so much resistance from almost everyone who's in a position of power about accepting Bitcoin? And what did you learn from that?

Well, look, we have a massive financial market infrastructure, a massive financial industry infrastructure that is very close with its regulators as well. It's a legacy system that was born in the 20th century. You know, it's not only massive. It, you know, it touches our lives in so many ways. It's fundamental the economy. And it was one state of the art in the last century. it's showing its age now. You know, I actually liken our financial system to a lot of our physical infrastructure,

our bridges and our tunnels and our airports and our railroads that were one state of the art, you know, are no longer so and they're decaying in front of Verizon. We need to upgrade them. A lot of that is similarly true about our financial system. And I really believe digital token technology and digital asset technology has the promise to actually help us modernize the system and up. upgrade it for generations to come if we let it. But, you know, there's an old adage, you know, challengers to the status quo, the first thing the status quo does is ignore them. Then the

second thing it does is attack them. And the third thing it does is it adopts them. I think we're in the late attack stage right now. When I went in front of that hearing, we were just coming out of the ignore stage. And my testimony was to basically say, sit up and listen everybody. There's something going on here. I think, you know, I described it the other day, somebody said, where are we? I said, I think we're in the Empire Strikes Back segment of the trilogy. It's the best movie, by the way. It is. And the Death Star right now is, you know, is quite active. And, you know, so we are, you know, this new innovation is being attacked by a legacy structure, a legacy regulatory framework, a legacy industry. But the smarter ones,

are getting it. You know, it's amazing how, with the launch of Bitcoin futures that we did at the CFTC, you know, that allowed for the first time solid traditional institutions to enter into this on a regulated, U.S. regulated marketplace. And, you know, with the like, I cited in my book, the likes of, you know, Bank of New York going back to 1778 and mass mutual and fidelity, with these kind of names coming into the space, the adopt, we're moving, we're still in some of the Empire Strikes Back, but eventually we're moving into the adoption phase.

So I think we're in, you know, phase two and a half right now. I think, I tell people all the time, I think the medium to long-term future is very bright. I think the immediate situation right now is precarious. But ultimately, the system will modernize because ultimately that's what we do in the United States end because generationally that's where this is headed. My generation will eventually pass the baton to a new generation that gets in digital assets. They get it in their bones because they've been

video gaming since they were 16 years old and they understand digital tokens. They understand avatars. They understand, you know, a virtual world, the metaverse. And so it's changing, but, you know, we're still, the empire is still striking back right now. Yeah, you're speaking our language. So I guess we're at the part where Luke Skywalker just gets his hand cut off, right? And that's why we're feeling some pain right now. And this was so striking because you said you had regulators calling you. And their specific concern was like, don't make Bitcoin legitimate. Your actions could make Bitcoin legitimate. And you talked about this general fear of change and this general departure of the status quo. And we've talked so much on bankless about how we feel like some of the regulatory

regime anyway is sort of an incumbent protection. sort of force and it can feel like a racket at it sometimes. But can we get into some of the specific concerns, like the fears, okay? When someone's saying to you, I'm afraid that you're going to legitimize Bitcoin, what exactly are they afraid of? Is this, we're afraid of the volatility, and we want to protect retail? Like, this volatility could destroy the economy. Are they afraid of loss of dollar supremacy? Hey, this is the dollar's world and the U.S. has a strategic interest in making its dollar supreme? Are they afraid? of kind of the criminal and terrorist type of angle, what are their specific concerns with

crypto being a legitimate asset class? Yeah. So all of the above, it almost, you know, where you stand depends on where you sit. So if you're a central banker of a major continental economy with a reserve currency to protect the euro, the pound, the dollar, then a big concern about Bitcoin is its potential to unseat those reserve currencies. If you're a central banker with a monopoly over wholesale payment systems, you're worried about stable coins taking that monopoly. If you're in charge of AML KYC procedures, say, a treasury, then you're concerned about payment rails that are outside of that control. And tokenization is very scary to those who are the overseers of account-based money systems. You know, if you're in a court, I mean,

correspondent banking is right in the crosshairs of digital assets, right? It's a huge rent collecting that sucks up one or two percent of global GDP just to move money around the world. You know, think about how Kodak must have felt when digital photography came about. Well, in the same way, if you're running a correspondent banking, you've got to be really afraid of stable coins. So there's a lot of fears to legacy systems. What I tell fellow regulators is don't confuse the state of the art of a method of achieving policy with the policy itself. AmL KYC, as we currently know it is based upon identity as the first step in every transaction. Why is that? Because our account-based money system requires identity as a first step in every transaction. Somebody's got to identify who you are,

where you bank, and how much money's in your bank before you can use a check or a credit card or Zell or Venmo, right? As we move to a token system, we don't need to establish identity in every case, although we can unmask identity in a pseudanonymous system later on if pattern recognition shows us There's something that needs to be unraveled. But for many people that oversee AMLKYC, they can't envision a world where they don't establish identity in every transaction. And so they're confusing the state of the art of a method with its ultimate policy goal, which is catching money launderers and illicit commerce. And so, you know, regulators get comfortable with methods of regulation. The reason why DeFi just blows the heads off regulators is because regulators regulate in a common way.

How do the regulators regulate? They look at an ecosystem and they say, where are the intermediaries? Where are the choke points? Great. Well, we'll register them, we'll license them, we'll give them certain jobs to do, collect information, et cetera, et cetera. And in return, we'll give them certain monopolies and barriers to entry. That's how regulators in an analog world traditionally regulate. But once you get rid of the intermediaries, regulators kind of have a connoisse

because they can't figure out how to do. And what they've got to do is relax and recognize we can go from an entity-based regulatory structure to an activities-based regulatory structure using big data analysis, blockchains, and let's use pattern recognition to find bad activities. And once we establish the activities, we can then go find out who are the actors engaged in those activities. But it's going to require a sea change. And one of my biggest concerns is regulation made for the convenience of regulators.

My biggest disappointment in the recent PWG report was it was all about, you know, first, do not disturb the regulators. Do not ask the regulators to change any of their methodology. You know, it's innovate for regulatory convenience rather than innovate to solve societal and economic and market structure problems. we can do better. I definitely think we can do better, Chris. And part of my worry is, like, do people in government in these places of powers actually understand this asset class? They understand, like, what peer-to-peer defy can bring. Are they, they're starting to use it? And I think that will come soon. But let me ask you a question, because we do want to talk a lot more about regulations, some other themes in your book. But just to kind of round out this discussion about

kind of the birth of crypto dad and futures and all of these things, do you feel somewhat vindicated at this point. Okay, so the SEC has just approved an ETF based on what, Bitcoin futures. Okay, the futures that you started four years ago, people were taking full page ads out against you and grilling you in front of Congress. And now there seems to be an acceptance, cross regulatory body acceptance, in general governmental acceptance, that this asset class is here to stay. And thank God we had futures four years ago to prepare for this day. Now, retail can get more involved in asset class. Of course, we'd like to see spot. We'd like to see other things. But this is at least a step in the direction. Do you feel vindicated by that, like being on the right side of history?

Yeah. So I tell you what, back then we knew we were doing the right thing. I don't want to sound arrogant, but in our heart, we knew we were doing the right thing. Because in every mature market of any commodity, ultimately a derivative futures market develops. And ultimately, the price is actually no longer set in the spot market. It becomes set in the futures market. And the reason for that, and that's true in oil, that's true in wheat, that's true in cotton, that's true in iron ore, that's true in interest rates. The reason for that is because the spot markets are too dispersed to bring all the

major buyers and sellers together, which happens in the futures market, where they can all meet and set the price. So it's market economics 101 that we knew when we launched a Bitcoin futures market. Eventually, it would become a major component of a matured, sophisticated, deep, and liquid market infrastructure. But I do feel vindication for the pundits. There were press people in the mainstream press that were lampooning what we were doing. they were old kind of central bankers that couldn't envision a world beyond the 20th century world they knew that were giving us a hard time.

So I do feel vindicated in that regard. But more importantly, I'm delighted to see this emerge into a $3 trillion marketplace. It shows what happens when you get really strong emerging technology, breakthrough technology, combined with the right regulatory. response that's not suppressive that is saying how do we channel this for good when you combine the private sector and the public sector in a in a smart in a smart construct really good things happen and we've done it before in the united states i'm actually working on an op-ed right now with dante desparte you know in the 1970s a new technology came around and that was called financial futures up until the 1970s the only way to control economic risk was actually through

agricultural futures. There was no idea about doing futures on interest rates or on foreign exchange. And once those products came around, it actually allowed the United States to go off the gold standard and it allowed the dollar to become the world's reserve currency with enormous wealth increasing aspects for American citizens. But it was an enlightened response to Washington. Washington said this innovation is so important. We're not going to screw it up by giving an old line regulator like the SEC oversight. We're going to create a brand new. new regulator, the CFTC, to oversee it to make sure it oversees deep and liquid markets for this new innovation. So if you get the regulatory response right for a new technological innovation,

enormous amount of economic and national growth can result. And so I think what we did four years ago is another example of that. Chris, there's a small rabbit hole that I want to go down about the futures-based Bitcoin ETF versus a spot one. And learning that most price discovery actually happens in the futures market, that's actually new information for me. I'm not well savvy in the world of futures markets. But one of the big complaints of the futures ETF that we hear a lot throughout the industry is that there's not actually physical Bitcoin actually put into custody somewhere. And a lot of people get frustrated because they think that spot demand of a spot-based ETF will actually create a price appreciation of the underlying BTC asset, which is what a lot of the

people in the industry want. Demand for an ETF creates price appreciation in BTC. And the conversation has been something around the lines that a futures-based Bitcoin ETF doesn't have that effect. Is that true? And is there any color you can add to the actual impact of demand of a futures-based ETF versus a spot-based ETF on the price of the underlying? Yeah. So first of all, just add to that sort of basic futures economics 101. There's two types of futures. There's futures that upon the the expiration of the futures contract, say it's 30 days or 90 days, settle in cash, in dollars, but there's also futures that actually physically settle. So you can imagine a wheat contract at the end of the period.

You've actually got to deliver the wheat. Well, actually, wheat greenlighted two types of Bitcoin futures at the CFTC, a cash settled one, which is the CME product, and a physically settled one, which is the backed product. the as I understand the pro shares ETF it's based upon the cash settled one that CME does yes it's very possible though that an ETF could be launched and maybe there are applications in front of the SEC right now

for a Bitcoin ETF that settles on the physically settled Bitcoin futures at back I have to say I don't know if there is but there's no reason why it couldn't whether the SEC would approve it or not I don't know, but in a construct that you could have an ETF constructed that way. You also can have an ETF that's constructed to reference an underlying spot market. What's a spot market? That's a physical delivered market that's not in the future, but it's today, physically settled today. You buy, you receive Bitcoin.

We know there's those exchanges, coin base cracking here in the U.S. There's many of them abroad. When I was at the CFTC and when we greenlighted Bitcoin futures, we knew there were applications pending since I think 2013 at the SEC for the ETF. So we actually started a study group at the CFTC to start thinking about what happens if the SEC actually greenlights Bitcoin ETFs on our marketplaces. And we started actually doing some economic scenarios as to what that look and looking to see where there might be some concerns. Now, when I left the commission in 2019, the SEC still had not greenlighted any of those ETS. I don't know, as I'm talking to you now, to what extent the SEC and its recent greenlighting approaches drew on any of that economic research we did at the CFTC.

I don't know to what extent the concerns we had then about what are called position limits and margin concerns and a balance between cash settled and physically settled have been taken into account. I simply don't know what's happening in the black box of the SEC. And I don't know whether they're talking to the CFTC. You know, one of the things, and I read about this in my book, I was shocked, I mean, literally shocked at how little conversations take place between this SEC to the CFDC, to the OCC, to the Treasury. I mean, it's like these regulators are in separate ivory towers. And one of the first things I did was break down those towers, establish both personal relationships with the heads of them, but also institutional working groups and ad hoc joint committees to break through some of these silos.

And we worked very well at the CFDC and the SEC during that time. And I just hope there's some good conversations taking place today. And they're sharing analyses and economic research because, you know, products and markets organic, they're always changing. You know, what works in the summer may actually not be working so well in the winter as different dynamics. take place in the market. And a big job of regulators is what I call market intelligence to be following these developments on a daily basis and see if things are getting out of kilter. So it's a long-winded answer to say, I do have concerns about market structure between this ETF product and how it's interacting with the underlying Bitcoin futures market. But I'm not in the flow

information. Some of this is highly technical. I don't get the daily runs that I got as chairman. And I would get daily information from our market intelligence people. We would follow it. We would do a Friday morning review every week to see what the ramifications are. When we launched Bitcoin futures, we had a whole team to just monitor it daily to make sure the margins were right and how it was working. And there's some great teams at both agencies. I just hope they're coordinating. So with regards to the actual price of the underlying asset as a function of the demand of either futures or spot-based ETF demand for,

futures versus spot is the differences in how these impacts the underlying price of these things undeterminate and determine it or do we actually know that yes demand for a spot-based ETF actually does connect to the actual price of the underlying more directly than the price of a futures so it's art not a silence science right and if i can just point paint the picture why is it that the cfdc only oversees derivative markets and not spot markets right well go back to the original products that were traded in futures markets. They were mostly futures on commodities. So the CFTC oversees wheat futures, but it doesn't oversee the spot market for wheat, which takes place at grain elevators all over the country, right? It oversees the futures market for gold, but it doesn't

oversee the gold price that's set in jewelry shops in every town square in America. It oversees the price for oil futures, but it doesn't oversee the price. The price. paid at the gas pump when you buy gasoline. And because the price paid for gasoline is at millions of gas stations all over the country, that's not actually where the fundamental price is set. The price is set in the 30-day oil futures market, the 60 day, the 90-day, the six-month, the one year. So that's basically futures markets 101. When you now go into Bitcoin, at first, since the origins of Bitcoin, you know, a dozen years ago,

the price has been mainly set in the spot market. But with the emergence of both cash settled and physically settled Bitcoin futures starting in 2017, you're increasingly seeing the key price set in the futures market. Why is that? Because the big institutional players, the big hedge funds, the big money management funds are actually not engaged in those spot markets for the most part. They're doing their major institutional buying and selling in the futures markets and there's retail there as well. I wouldn't say that the shift of where the price is set is fully flipped over to futures.

My understanding and talking to people in the market tell me it's probably still somewhat 50-50, but the trend is going more and more to the futures. And that's an organic, natural process that takes place in most futures markets. Once upon a time, the price of wheat was set when the farmer sold it to the great. elevator. Today, it's set in the various wheat markets in Chicago, in Kansas City, and Minneapolis. And similarly, that's starting to evolve in Bitcoin. And I'll add one more thing. There may be some people that are concerned about that. Ultimately, that's a good thing. One of the strong underpinnings of the U.S. dollar as a reserve currency is most of the world's major commodities and benchmarks are

actually made in dollar-based futures market. The fact that the price of oil is set in U.S. markets in dollars is a huge strength to the U.S. economy. The fact that soybeans, the world's most important edible commodity is set in U.S. markets is a huge strength. You know, when a soybean farmer in Argentina sells soybeans into the world, he's not only going to worry about the soybean price, but he's also got to worry about the conversion from his currency into the dollars. American farmers don't have to worry about where the dollar is in global markets. So it doesn't have to worry about a conversion into another currency. So these are strengths.

I think it would be a tremendous advantage to the United States if ultimately the price of Bitcoin were set in U.S. markets under U.S. regulation settled into dollars. Well, that illustrates very clearly as to perhaps why the SEC was a fan of a futures-based cash-settled ETF for Bitcoin coming out out the gate. Is the answer to the question, the reason why futures markets set the ultimate price is because that's where all the liquidity is? You said like all the big money. This is just where more volume occurs.

And so therefore that's where the price occurs. It's where the major buyers and sellers and it's where information, you know, information is what drives market, right, is where most of information is aggregated. We know on the global spot markets there's huge arbitrage in price. And the reason you have arbitrage of prices, not every market has got all the same information at the same time. So an Asian market during daylight hours may move in one way that another market, even though it's 24-7, you know, it may be nighttime there. You've got less buyers and sellers in the market there. And so the reason why the futures markets eventually become the price setter is because you have all the information in one place.

You have all the major market participants in one place. You have all the liquidity, the depth, you know, liquidity is a, it's not a one factor thing. A lot of people think about liquidity is the number of buys and sales. Liquidity is sort of like a diamond with many, many facets. You know, there's depth of liquidity, there's breadth of liquidity, how many participants of the market, there's concentration of liquidity. Do you have one or two players that provide most of it, or do you have not only 100 players, but it's spread out amongst those players?

It's the dynamics of liquidity. You know, what is liquidity like in midday compared to what is liquidity like at midnight? And that's an important element of liquidity. There's how does liquidity react to certain external factors? If, you know, if there's a rising interest rate environment or a market crunch, what happens? So liquidity is a multi-factor thing. And therefore, market participants ultimately congregate around one or two marketplaces where they can find the deepest depth, the broadest breath,

the most consistent liquidity. That's what futures markets provide traditionally in most of our major commodity markets. Ultimately, you'll see that happen in Bitcoin. And I don't say this with any bias. It's just as a student of market history, that's what generally happens. As Bitcoin becomes an accepted part of the financial landscape, I would imagine the same dynamics that have happened to most of the world's major commodities will similarly take place with Bitcoin. If not, then you question whether Bitcoin is truly an investment-grade asset class. If it is an investment-grade asset class, I would imagine it would follow the same trajectory that the world's other major commodity asset classes, energy commodities, food commodities, et cetera, follow.

This has been super educational, guys. Just so many gems in there. This is crypto-dad schooling us on liquidity and commodities, which is super important. So many things we could highlight there. One I think that was particularly insightful is I do think that the commodities world has a lot more to teach us about layer one blockchains like Bitcoin and Ethereum, than the securities world does, actually, as a matter of fact. Because at the end of the day, what is block space? Well, that is a commodity. And what is the unit of account and store of value and medium of exchange for buying block space? Well, that's Bitcoin and Ether. Bitcoin on Bitcoin and Ether on Ethereum, right? And this has correlaries to how the U.S.

dollar has maintained its monetary supremacy. It is the petro dollar. It is the dollar of the commodity, which is oil. Oil makes the world go around, right? This is energy. So many things we can learn from the commodities market in crypto. I want to touch on another thing that you mentioned, which is this kind of collaboration between the CFTC and SEC, and sometimes it happens, maybe other times it doesn't. But one collaborative point I read in your book, this is an insightful paragraph. Another asset we care a lot about besides Bitcoin is ether. And this year, Ether, finally got some futures. This was like a weeks, not months thing that has been speculated about and promised for a while

and hoped for it for a while. Now it finally came this year. It also felt like it came on the back of something that SEC regulator Bill Heinemann said in 2008. He said, based on my understanding, this was a speech he gave, Ether is not a security. And it felt like in your book, maybe you implied this was part of some collaboration and part of some ongoing discussions between the CFTC and SECC to actually make that statement happen too, or influence Bill Heinemann, and other than the SEC's decision making on that. Anything you can speak to about ETH futures and the path that that's going down.

And do you expect, I know you can't comment on like what the SEC is going to do next, but do you expect an ETH ETF to follow at some point soon? So thanks, right. There's a lot to unpack there. we began by talking about collaboration. There's two areas of collaboration that are equally important. One is with our great exchanges, I mean, CME and ICE with backed, also deserve a lot of credit for originating these products.

These are seasoned market operators that bring enormous amount of skill and experience to managing markets. And so we're talking a lot today about the credit to the CFTC, but credit goes to them equally, if not more, for managing smart markets. The reason why the Bitcoin futures market is doing so well as it's well managed by CME. Another area of collaboration that I think often gets left out of the conversation is across the political aisle. You know, during Tim Massage chairman of Chip of the CFTC, when I had the honor to serve alongside him as a junior commissioner, we worked very well together.

And actually, the birth of the CFTC's role goes beyond before me. back to 2015 when Chairman Massage administration, with my support, identified Bitcoin as a commodity under CFTC jurisdiction. We made that statement in 2015 before the launch of Bitcoin Futures in 2017. And it was absolutely the right determination. Bitcoin is undoubtedly a commodity, and it deserves a regulation by the CFTC, not the SEC. In 2018, that is a few months after we greenlighted Bitcoin futures. We had established a SEC CFTC cryptocurrency ad hoc working group. Chairman Clayton and I put together a team of about 15 professionals from our two organizations that met every two weeks. Part of it was to make sure the SEC understood how Bitcoin futures were operating. But what we also

did was drew up a list of major emerging crypto assets and wanted to start working through them with the SEC to identify which ones were commodities and therefore on the CFTC side of the ledger and which one might be considered securities and fall on the SEC side of the ledger. Now, that work was done in confidence between the two agencies, so I'm not going to comment on any particular crypto. But as I describe in my book, we were focused on Ethereum as perhaps the next major crypto asset to emerge in terms of utilization and use in as a result of these biweekly conversations and perhaps independent work the SEC was doing in the summer of 2018, Bill Hidman gave that speech where he said that from his point of view, Ethereum was not a security.

Now, that was consistent with the viewpoint of the CFTC and my successor, Heathor-Torbert, came out with a pronouncement saying that Ethereum is a commodity. I very much believe it is. So I think that Hinman's speech was right. I think Chairman Tarbett speech was right. But some of the seeds of that determination was laid in those cross-agency meetings that took place every two weeks during the remainder of my term as chairman. And then I understood they continued into Chairman Tarbert's term.

I don't know whether they've continued under Chairman Gensler, the SEC and acting Chairman Benham at the CFTC, I can't say. But I think those meetings were influential in a number of regards. Yeah, absolutely. And we hope they're still continuing and that there is some discussion between these agencies moving forward. I'll add one other thing, Ryan, since I left the CFTC as a private citizen, I did publish a piece in the spring of 2020 in the International Financial Law Review stating my view as a lawyer that, that, that, that XRP is not a security. Interesting.

And we'll see how a court determines that. But that's a published piece that I put out. But I didn't state that as a chairman of an agency. I said that in my private capacity. And I think we do want to touch on more regulatory items, including maybe some more conversation about the SEC and CFDC and kind of their roles and things. When you shop for plane tickets, you probably use kayak, Expedia, or Google to compare ticket prices.

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to eventually become a completely permissionless protocol. So if you want to stake your ETH, Terra, or Sol, and get liquidity on your stake, go to Lido. I think it started. Let's talk a bit more about the main theme of the book, right? So it's called Crypto Dad. I say the book, but it's also kind of, I think your message lately, it's something maybe you've accidentally gotten to crypto, like all of us, you know, 10 years ago. If you'd ask me, you know, what I'd be doing. I would not have said I would be doing a podcast when

crypto and like in this industry. Like it would be completely different trajectory. But now here we are because so much of what we see in crypto, I think has aligned with, um, you know, our core values, values like freedom and economic enterprise and the accessibility of our financial system. But the title of your book is called The Subtitle is The Fight for the Future of Money. It's interesting you use the word fight. You also use the word future of money. And I want to talk about this quote, which is sort of the synthesis of the thing to me. And you say this, money is too important to be left to central bankers. Money is too important to be left to central bankers. Money is too important to be left to central bankers.

There's a lot to unpack there in this statement. So let's unpack it. What do you mean by this? And why did you say it? Money is as much a social construct as it's a government construct. If you go back to the beginning of time, whether money was in the form of shells or beads or clay tablets or wampum or money reflects societal, as a lot. estimates of its worth, they think those shells or beads or clay tablets actually represent something,

or society thinks they're worthless and moves on to something else. Governments can issue all of the paper they want. They can issue all the polymer notes they want. But if society doesn't confirm the value of it, if society doesn't believe in it, if society is worried about its inflationary impact, society will find other means of money. governments cannot issue money willy-nilly without concern for the trust of society. Trust is in many ways what's driving the whole crypto revolution, a generation that lost trust in the existing financial system and then the overseers of it during the last crisis are experimenting with trustless systems or consensus-based trust systems.

Trust is at the heart of this whole new innovation. Trust is at the heart of the lack of authority or the diminishing authority of the old system. Trust is everything. And trust is a consensus mechanism, the trust of society. If there's not a consensus of trust in a given instrument. And it doesn't surprise me that in the same week where Congress decides to spend over a trillion dollars that is supposed to be free, to have no cost whatsoever, according to some government officials, then the same week, Bitcoin hits an all-time high in terms of its value.

People vote with their feet as to where they put trust. And so the reason I say that money is too important to be left to the central bankers, it's not an insult to central bankers. It's a statement that says we all together, central bankers and the private sector, must establish trust must protect trust, must, must, must, must protect trust, must in the monetary systems we use. And I think we're in a phase right now, whether it comes to money, whether it comes to financial systems, whether it comes to all aspects of society, where we're, we're in a search for who do we trust? We've lost trust in traditional institutions and traditional conventions

and, and ways of life. And we're searching for a new, some, some new social market. some new social paradigms, and nothing is sacred. But the banking system is not sacred. And the existing monetary system and the dollar itself are no longer sacred. Trust is not a given. Trust needs to be re-earned. And so my message to my former colleagues in the central banks are, you've got to open your eyes to what's going on here.

Simply insisting upon faith in your traditional oversight, your traditional institutions is just not going to cut it. You've got to re-engineer, you've got to re-engage and rekindle trust. And I think that digital-based trust is something that a lot of people increasingly are putting their faith in as opposed to, you know, great paragon's virtue behind marble pillars in big offices in Washington. It's just not doing it anymore. Chris, this is amazing. This is like, so you first of all, I'm super impressed that you are taking this back to

base principles because so many people when they talk about money, they don't think that way. They don't look at the societal trust, the shared values, basically the shared fiction, the societal construct that money is, right? They're already way beyond that. And they start at a level that doesn't even make sense. But when we talk about crypto and a new paradigm for money, we have to get back to the basis of like what money is. And when you unpack what money is, that's where the second.

part of your sentence makes sense, which is like it's too important to be left to central bankers because a small group of central bankers cannot possibly determine the consensus for an entire society on what values society cares about, right? We have other governance structures in place for that. There are things called markets. There are things called democracies, for instance, where the people get to choose what values they want to imbue in their money. And this feels very much to me like we are changing our monetary regimes and the way we think about money as we enter this digital era going from the physical analog era to this digital era. So we better make sure we pause and we get the values right. And it's not up to the small group of central bankers to like tell us what the values are, right?

Because they don't get to decide. They don't get to pick. This is a bottom up phenomenon. Can we talk a little bit about what values you think are important and you think, society will feel like is important in this new monetary system that maybe we're constructing from the ground up. So you're so right on. So, you know, one of the big driving value system behind Bitcoin, behind crypto is the notion of economic privacy, economic liberty, and censorship resistance, right? Okay, provided it's legal, what I do with my money is my business and nobody

else's business. That's a huge driving factor. And yet at the same time that Bitcoin is attracting a whole generation because of that economic privacy and liberty, it guarantees, we have a government proposing to monitor bank account transactions of $600 or more. And when I read that, I thought, oh, my God, you're missing the whole point when you propose something like that. You're diminishing trust in the existing system. You're actually, you're very, you're very, you're very, you're very, validating crypto by just by proposing something like that. There's just this disconnect between, you know, my generation's oversight of the financial system and where they're going and a new generation going in a completely different way.

What people are searching for in crypto is economic liberty, that what I do is my business. Okay, of course, of course, I'm a former regulator. Of course, we cannot have scope. for illicit conduct, right? Silk Road put a stain on the whole innovation. You know, we've got to have proper law enforcement. But law enforcement is law enforcement. If something is legal, we're no longer talking about law enforcement. We're talking about people's entitlement to economic liberty, economic privacy, and no censorship by politicians. You know, I talk in my book about, you can imagine a world where you get a right-wing government come in and suddenly you can't use

digital assets to fund an abortion. You get a left-wing government, suddenly you can't use it to buy ammunition for legal firearms, right? And you can have this ping pong, whichever government's in, they start censoring our use of money. We cannot have that. A free society must demand economic freedom. And economic freedom, by the way, is as important as religious freedom. It's important as free speech. If you don't have economic liberty, you don't have liberty, right? Because we live in a economic, we live an economy. We live in a capitalist system. You need to spend money to have experiences, whether they be philosophical, whether they be social, whether you want to bring about change in certain things.

You need to be able to deploy capital. And so economic liberty is human liberty, and we can only have economic liberty if we don't have government censorship. And so the reason I call my book the fight for the future of money is we're truly in a battle. We're in a battle between, governments, both dictatorships and democracies, over what values will be in digital money. The digital you on will be a tool of surveillance. The question is whether a digital dollar will also be a tool of surveillance. We're in a fight over sovereign and non-sovereign money. Big tech companies also want to have your data. So if a big tech launches a digital currency, how will they mine your data and how will they use?

your data to influence choices you make as they do with social media. We're engaged in that battle is also the big legacy banking system, which has a vested interest in either preserving certain ways of doing business or making sure that new ways of business they have the same monopoly in. And we're in a battle with legacy regulators that like the regulatory structures in which they're comfortable, that which they've prevailed for so long and are unwilling to change. And so those are your combatants in this fight, but the most important combatants of all, I'm afraid, haven't fully taken the field. And that's society at large.

That is your neighbors and my neighbors, the bookkeeper down the road, the dentist that I visit on, you know, once a year. Those are the people that are not really fully engaged. They say, oh, crypto, that's interesting. And what I'm saying to them, it's more than interesting. If we don't get it right, a digital future could be one of enormous, actually, repression. and censorship and surveillance. And if we get it right, it can be one of much greater inclusion, much greater economic liberty than we have today, a faster and more efficient financial system and one that serves people much better than the current one does. But that fight is in the

balance, the outcomes in the balance of this fight right now. There's a lot of players with a vested interest and there's a big society at large that doesn't understand the degree of interest they have in this. And my book is a bit of a cold arms to them to say you've got to engage in this battle because the future of money is going to be the future of liberty. Well said, sir. I mean, this is fantastic. I'm going to shivers down my spine. Yeah, this is exactly why we're in this industry, Chris. It's exactly why we're on the bankless journey. So many fantastic things you said, but I'm reminded that quote that eternal vigilance is really the price of freedom. And as we change monetary regimes, we're also having this like human wide regime change where we're moving

from analog sort of rights written in things like the Constitution to sort of a digital rights type landscape. And things are different in the digital world. And if we don't have a bill of rights economic freedom in the digital world, what if we lose everything that we have tried to gain in the analog world? And that's a big worry. I guess, you know, when we see big tech sort of encroaching on our civil liberties and our digital economic liberties, and then when we see places like authoritarian regimes in China sort of say, you know, this is crypto, this is digital blockchain. It's called the digital one and we control it and we surveil it and we tie it to your social credit system. Do you have hope, actually, that your neighbors, your friends, society, the citizens will actually fight for these freedom?

It seems like it depends on the people once again to actually care about these things and to actually start fighting for them. And sometimes, Chris, I've got to be honest, even though I'm hugely optimistic. That's why I'm in bankless. That's why I'm in crypto. That's why we're saying the things that we're saying. But like sometimes I'm worried that we're in kind of this echo chamber of people who just care about this. But like the wider society doesn't understand enough to care about these freedoms. They're not thinking long-term enough to understand that we are moving into a digital future, potentially of repression.

Like the metaverse could be a very dystopian place if it's controlled by authoritarian nation states and big corporate interests. But if it's individually controlled, if there's like freedom, economic freedom and digital freedoms for the individual, then it could be a fantastic place. But if we don't get it right now, there's so much at State to Luce. My worry is, or do you think that enough people will care to actually make this happen? What makes you optimistic? So, Ryan, I totally agree with you. I think we've enjoyed too much the convenience that comes from digital commerce that we've just allowed all our data to be sucked out of our transactional activity.

We've so enjoyed the pleasures of social media that we've allowed social media companies to basically suck all our data out of us. And I worry that we'd be far too happy with digital money that we'd allow either central banks and governments or big tech companies to basically take away our economic autonomy by gathering all our information or worse, start conditioning our economic choices by, in the same way they condition our media choices. And so I'm as concerned about that as you are. And it's one of the reasons I wrote my book.

I wrote my book not for a Beltway audience, not for a crypto audience, actually, as much as I hope they read it, but really for an ordinary audience. And that's why it both contains technical discussions with storytelling and simple messages, because I just want ordinary people to read it and come away with the concern that they've got to be activated to fight in the future of money for their liberties. What gives me hope is actually the way that recent proposal to surveil bank accounts for $600 transactions was fought back and actually dropped. it says to me that there are still concerned citizens that are outraged by the notion the government

would collect that kind of data. And that outrage needs to continue. And it's not politics. If you know me and if you read my book, it's not Republicans or Democrats. You know, having the light bulb go off, falling down the Bitcoin rabbit hole happens to both Republicans and Democrats and there's resistors on both sides. It's not political. But the fact that a proposal like that, that proposal was more bureaucratic than it was one party's proposal. It was the, it was the Washington Apple Book Soup of agency saying this is to our advantage, this is for our convenience, let's do it. The fact that society rejected that, push back against a big government effort to surveillance, to me is a candle in the dark that hopefully society gets it. And hopefully

if people read my book and get activated and activist on this issue of economic liberty, hopefully the metaverse, the future. And but we all know this is happening. There's no turning back. This is coming. The future of money is digital. The future of financial services is digital. So the fight now is what are the values of that digital future going to be,

just as we've been talking about. And we've got to fight today for economic liberty in every way and in every forum and every conversation. Thanksgiving's coming. What a better time to talk about economic liberty around the Thanksgiving. Thanksgiving. And believe me, don't make it political because it's not. It's just about what does a free society do when you go through fundamental technological and economic change? We must maintain the values of a free society. And the perfect opening for that is, you know, Bitcoin, Ether, of crypto at an all-time high. So you know at Thanksgiving, they're going to be asking something

about crypto. There's your opening, folks. Chris, we talked to your regulatory counterpart, crypto mom, Hester Purse one time. And we talked about the alignment. behind crypto and American values. A lot of American values are instantiated in the systems that we use. And while watching all of these different regulatory agencies, we've kind of, in my opinion, the CFTC has always been the most fair, the most logical, the most rational, the regulatory entity that allows crypto to continue to express its American values without being overbearing and just restrictive.

So if there were all the other regulators listening to this podcast, which hopefully one day they will. Can you illustrate perhaps the model of like how and what has the CFTC done correct that you think that they should follow in your guys' footsteps in order to make sure that these values that we uphold so dearly are retained by these systems? Yeah. Look, each regulatory agency has a different provenance. They have a different history. They have different congressionally assigned missions. They have different political cultures. The CFTC, I think, has this. combination of having the best of all of that. I mean, for one thing, it reports to an ad committee,

which is a group of really nice Midwestern people that generally get along. They don't divide by politics at the ad committee. It's always, it's not always, but mostly bipartisan. And therefore, that, you know, tone from the top comes down to the agency. I'll give you one little example that I mentioned in my book. When you go to the Senate banking committee, the senators sit on this raised dais behind this wood paneled bank. And you have to look up to them. After an hour, your neck hurts. And, of course, they love looking down at you, right?

When you go to the ad committee, the ad committee doesn't sit on a dais. They sit around a level table, which is meant to symbolize a kitchen table on a farm. Wow. And so you look at them level like you're sitting at the table with them. It's just a little thing. But little things in life make all the difference. It's a sense of whirl in this together. You know, it's not us against you.

We're all in this together. And when I go and testify in front of the Act Committee, it's less a testimony. It's always been a conversation. And that's just a starting point for the type of bipartisanship that generally takes place at the CFTC. It's not an agency that breaks down by party, as many other agencies do. Another thing is some of our fellow agencies like the SEC have an investor protection mandate. and they often see everything in the eyes of almost like the low how do we protect the lowest common denominator not the most sophisticated market participant but the least sophisticated and i think with great respect

i think that kind of dumbs down a lot of their approach to the thing i think it's why their approach to investing is accredited investors can invest in anything but non-acredited investors are very limited what they can invest in and it's almost like protect the incumbents and protect the rich and not help the the least ones who might want to get in more sophisticated and take more risk. It feels very patronizing at least. I think that's a fair characterization. I'm critical. I write about that in my book.

I'm critical. Now, the CFDC does not have an investor protection mandate. Its mandate is to maintain deep and liquid and orderly markets free from fraud and manipulation. And by definition, derivative markets tend to be more institutional than retail. So the CFDC has a product innovation bias. and the SEC has kind of a product limiting bias. And there's a whole bunch of reasons why the CFDC, I told people all the time,

if you're going to take an appointed job in Washington, and you're a markets person, the CFDC is the best job in town. It's a great agency. It's a collegial agency. It's got a great track rating. I'll give you one other factoid. We did this analysis between the year 2000 and 2017,

the CFDC greenlighted over 12,000, new product launches. That is more than every other regulator in the world, including the SEC combined, were greenlighted at the CFTC. I mean, it has a remarkable history of new product innovation. And I think it's an American treasure. A remarkable history of saying yes. A remarkable history is saying yes. The bias is to say yes. Why? Not not willy-nilly because it's a belief that the market will work out, the value proposition. By the way, of that 1,200, probably 900 of them, you know, disappeared after a few months. Why? Because the market didn't validate them, not unelected bureaucrats. And that's the way it should work.

I just want to leave you with this. What would I say to other regulars? What I'd say is courage. In Italian, we say, caragio. Courage, my friends. We're an aspirational society. We're a courageous people. We explored the moon. We explored science. cyberspace, let's not be timid about exploring the future of money. Let's just, let's be bold about this. Okay, we'll get a few things wrong. You know, we had a few mishaps on the way of the moon. There were a few missteps on the way to cyberspace.

Let's let's be smart about it. Let's prosecute fraud manipulation. Let's prosecute bad actors. But let's have a little bit of courage to take the step to explore this new innovation and not be afraid of it. Chris, one thing we always say at the end of this show, and the listeners are going to hear it in about 30 minutes is we are going west. We are on the frontier. It's not for everyone, but we're glad you are with us on the bankless journey. And so hearing that same

sort of like, yes, let's choose to explore. Let's choose to see what's out there is exactly the reasons why we get so excited about this world of crypto. Chris, you know what's really interesting about the story of the CFTC too is you're talking about like saying yes to all of these markets, right? And very much in crypto, we live in this world of like infinite tokens and infinite markets, right? And it's like the cream rises to the top over time, but there are a lot of failures. It's why it feels like a more open, less permissioned regulatory approach to this asset class is what's needed. And you use this term, I guess it's, you know, from the Hippocratic Oath in your book, like first principle, do no harm is what a regulator should do. And you tied that to kind of the regulators' actions in the 90s or the U.S. government's actions in the 1990s with sort of the birth of the internet.

Do you think that there are some lessons we can draw from that time period about not squelching innovation? I mean, I know you've used this term in a book. It's the term we use, crypto, is the internet of money, right? This is another wave of the internet, digital scarcity property rights on the internet. And so can we take an approach that we've taken in the 90s? And I guess what should the U.S. do? Like broader than just the CFTC and SECC, what would you like to see from Congress, from the broader executive branch? What would you like to see the U.S. pursue strategically here?

Yeah. So I wish we could take the same approach of the 90s, which was a very bipartisan approach. It was the Clinton White House and it was the Newt Gingrich Congress that came together that said in the first wave of the Internet, the Internet of information, we should take a first do no harm approach. to some degree, that was somewhat easy. And why is that? Because of our traditional democratic notions of freedom of speech. Our First Amendment protects freedom and doesn't just protect it. It says the federal government shall have no role in regulating speech. And therefore, you don't have a ministry of truth in Washington. You don't have a ministry of information. And so the first wave of the Internet kind of came into Washington as a regulatory light zone. this wave of the internet, the internet of money, the internet of value is not going into a regulatory light zone. It's going into a regulatory minefield because we don't, we have long in our democratic society presumed a role for government when it comes to overseeing things of value. We don't have one banking regulator in Washington. We've got three and we've got one in

every state. We don't have one market regulator in Washington. We've got two, and many states have securities commissions. And so as this wave of value, this internet that concerns things of value goes into the regulatory landscape, it finds regulators with legacy authority over things of value. And they're not interested in yielding ground at all. I mean, and so this wave of the internet is different because society has allowed and has accepted regulations. of things of value, and in some cases relied on it to police markets. That's why I firmly believe Congress does need to step in. I think right now, I don't hear coming out of this administration a pronouncement that innovation is a good thing, and there needs to be a national imperative

to further innovation. What I hear is we need to protect regulatory, legacy regulatory frameworks, we need to preserve, we need to first do no harm to the legacy banking system, not to the new innovation. And so what I'd like to see, and there are some voices on both sides of the island in Washington, that are starting coming around to that Congress needs to step in and say, yeah, we, of course, we need to protect markets against bad actors. Of course, there needs to be sensible regulation, but it needs to be balanced against a national imperative to modernize or use this new technology, harness this new technology to modernize our financial system to make it more inclusive. It's woefully exclusive. You know, it's a system that requires identity

in every case. In a world of 8 billion people, when a billion and a half do not have identity, they are excluded from the existing financial system. It's woefully expensive. I mean, there's so much rent collection in the current system. It's shameful. And it's slow and cumbersome. You know, it's a nine to five, five days a week industry in a time of 24-7, 365, commerce. And so we should harness this new technology. It's going to take Congress to make it clear that there's a national policy in seeing this further. And so that's where I'd like to see Congress step in. It's crazy to me. Like we can't even get stimulus checks out to all of our citizens, right? Right. I mean, it's just absolutely insane. And if we send it to our citizens, they're locked at

home under COVID restrictions or they don't have bank accounts and they can't cash those checks to You said that it's going to take Congress to get this ball really moving forward. And there's been a growing concern in the crypto space that eventually in order for us to actually clear this landmine, this regulatory landmine, it's actually going to have to be the courts that, because we can't get the SEC to give us clarity. So we're going to have to force them to give us clarity via taking it to the courts. But you're saying like, well, actually, Congress can do this. Could you perhaps like do a little juxtaposition behind what it would be like to get clarity

from the courts versus what it would be like to get clarity from Congress. And which one should we prefer in the industry? Like which one is better for both of us? Certainly Congress, not the courts. The courts are too idiosyncratic and there's not an opportunity for the industry and all industries. The new industry, the old industry. Congress is where, you know, our founders saw social issues, economic issues being worked out, right? we've got an election coming in 2022, and I'll tell you, I spent five years in Washington.

This is the time to make voices heard. This is the time to, when every congressman now after the election last week is now running for next year. This is the time to get in their grill. This is the time to let them know that Congress needs to step in, needs to step up and recognize this new innovation. And, you know, there's some leaders in the industry, some of the OGs like San Bankman-Fried, and others that are making the rounds in Washington, getting the word out, that this industry is a player, it's here to stay, and that it's got something to say

and needs the Congress to step up. I think it's got to be Congress. I think the opportunity to get the word out to influence a new generation of Congress people and senators is now, and ultimately, they're the ones that have to come up with good public policy. They've done it before. It can be done again.

I mean, that's the right court, the right course. The courts are too idiosyncratic. It depends on what judge you get, how the plaintiff's papers are done. It's not a place to iron out long issues of public policy. They're trying to interpret rules that Congress made. Let's get Congress to make new rules that show this industry, the support and the furtherance that it needs. I mean, we do deserve an update, right, from the 1930s and 1940s financial laws that we're

basically abiding by. I think it's, you know, every 100 years or so, you've got to. You got to update those things. A 1946 Supreme Court case is determining what's a security and what's not. I mean, come on how we test. Chris, maybe I'm naive here. And I want to get your answer to whether I'm naive or not. But I'm kind of gung-ho about crypto taking it to the courts.

And a little bit of this comes from the fact that the New York Stock Exchange took the SEC to court five times and won five times and really got that clarity five times in a row. And I think, I mean, of course I think this, maybe I'm very, perhaps I'm very biased. but I think crypto has the legs to stand on to win in court. Am I naive for thinking that we can take this to the court and wins and maybe we should just redirect all that attention back to Congress? Or what's the deal here? No, I don't think you're naive. In fact, you know, as chairman of the CFTC, court decisions were very important to our authority.

You know, we, as I said, we declared Bitcoin to be a commodity in 2015. It was a 2017 case, I think, that actually confirmed our determination and gave us the legal support we needed to stand behind our decisions. So I think the courts play an important role, but you know, they can play an important role that you can also have setbacks. It's, you know, it's a bit of a toss the dice. You and their decisions are narrow. They're, you know, focused on one particular aspect. There's not the possibility for the courts to give us a comprehensive statement of national policy to further this innovation. You know, only that can come from Congress. You're absolutely right. You're not naive to believe the courts have a role to play. I think they have an important role to play.

But ultimately, I think a free society elects representatives to go in to make determinations of broad public policy as what's our national interest in the development of this innovation. You know, the first wave of the internet enjoyed broad support in Washington. I think there's no reason why this wave of the internet shouldn't have broad support as well with the courts, with Congress. And ultimately, I'd like to see an administration, and I hope it's this one or the next one, that makes a firm commitment to innovation as opposed to a commitment to protect legacy structures. Yeah, absolutely. And I think within that, hopefully bankless listeners here are call to action, which is at least if you're in the U.S. elections or whatever jurisdiction you're in internationally,

elections are coming up. In the U.S., they're coming up in 2022. So that's next year. So right now, we should be lobbying. we should be making phone calls. We should be activating our voices and making sure the crypto messages are heard. Now is the time. I know we've spoken a lot about this on bankless. But I was also interested in like the postscript note of your book, Chris, which is basically about the infrastructure bill that sounded like it just come out when you went to publish on August 8th or so. And you said this.

It appears that Congress has now identified its first policy priority for crypto. This is like the first time that Congress is actually talking about crypto. in a policy priority. What is that? It's taxing it. And you said this. As it has so often, Congress appears to be mortgaging America's future to pay for political failures of the past. That, I guess, is the pessimistic side of things. It's like the crypto industry, I mean, our industry is moving so fast. We can't afford to wait for Congress, especially this Congress, right, who four years ago, they're barely listening to your message of we owe it to this generation. Speaking for younger generations, we don't feel like Congress feels like they owe it to future generations to do basically anything.

And so we're worried about this, Chris. Are there any other avenues where I say? Let me give you the biggest reason for optimism. Let me give you the biggest reason. Okay, please. Because lights a conveyor belt. And you guys are lower down the conveyor belt. My generation is toward the end of the conveyor belt.

Agency chairs come and go and then we fall off the conveyor belt and then your generation moves up. So generationally, this is moving in your direction. And so it's going to come. Again, I think we're in the Empire Strikes Back segment of the trilogy. The rebels got to hold on, survive the Death Star, and the world is going to change because a generation wants that change, gets that change, is behind that change, and eventually is going to dominate the landscape. It's on the come. short term it's precarious. Long term, I think the sun is shining down on the other end of the highway.

That's great. And maybe as we start to kind of summarize all of this and draw to a close, Chris, we're coming kind of full circle with your role as crypto dad. Because I feel like you are providing a lot of wisdom from your generation. Some fatherly guidance. Some fatherly guidance to our generation. It was really interesting in like the end of your book to read kind of a summary. And you made some really interesting statements, I think, particularly to young

people. I was wondering if you could leave us with some advice here, but one of the threads I want to pull in is this idea that you have about free markets and free peoples. You said this, free market capitalism is not a source of misery and oppression. It is the antidote, not a source of misery and oppression. It is the antidote. I want to ask you about that. You also said this, for young people, politically driven economies are dream destroyers, okay? I think there are a lot of younger people who are very much rebelling against the capitalism of the past, right? And I understand why. They see this form of institutional crony capitalism that has become corrupted and institutionalized

and basically has subjected the world into this kind of broken system. So I totally understand that. But you seem to be thinking about a broader picture here, and you're painting a picture of capitalism, maybe in particular, this internet of money being part of the way out, the way out being economic freedom. Tell us what you meant by that. Free market capitalism is not a source of misery and oppression.

It is the antidote. Why is it the antidote? Yeah, look, I'm no friend of phony capitalism, of crony capitalism, and I talk about that in the book. I'm no fan of big tech, no fan of big banking. But at the end of the day, I'm also concerned about trends that sort of would have us conform to sort of, like... group approaches to solving social problems.

You know, rarely to big groups come together and actually solve problems. It's generally individuals that have the freedom to think outside the box to bring new approaches to things. And so I hope we go into the future with a balanced mindset, not one that is perhaps coercive toward group approaches to things, but one that allows free thinkers and free individuals to express unique thoughts and to pursue unique dreams. And wherever you look in the world where you have tightly controlled economic systems, where you limit economic freedom, you find no growth.

You find generations that are thwarted at every turn. And if they're lucky, they escape those systems. And if they're unlucky, they're stuck into them for generations to come. You know, we in the United States have made our share of so many mistakes. mistakes, social, economic, and otherwise. And yet we're still the place where people with a dream and an idea go to thrive. And often they have to do it against a lot of pressure to conform, societal pressure, political pressure, online pressure. And yet, you know, and you referenced my role as a father. I kind of feel like it was my time to stand up for the free thinkers, for the

dreamers, the people that are unafraid to think for themselves to stand out. And I think that capital markets are the ultimate in crowdsourced innovation. You know, it's, you know, reason why I stood up for Bitcoin futures was let market participants decide its value proposition, not bureaucrats, not unelected people in government. I found a lot of great people in government. But at the end of the day, governments really provide solutions to social problems. It's more often the individuals and the free thinkers that are unafraid to put forward solutions and allow free people to decide whether they're right or wrong. So yes, my book is a call to action for a, to be unafraid to have faith in free markets. It's not a call for crony capitalism,

big corporates, big tech, big banking. It's a call for free thinking. I think that's what people feel when they're on the crypto journey and the bankless journey is this the sense of freedom like anything is possible there's limitless opportunity there's infinite white space and you said politically driven economies are dream destroyers i feel like right now the existing economy outside of crypto is politically driven and that's why our dreams are getting to exactly yeah exactly what we've got is political mandates to kind of stifle or hinder this innovation why to protect legacy systems that are ingrained into the political process. And so it's a dream destroyer.

And that's exactly what I was referring to in my book. You know, I'm not trying to name names. I'm trying to paint broad pictures. And I think if anything, this new generation, this new generation, I think, is truly the innovative generation of tomorrow if we can just survive the current onslaught and get to the sunny uplands. And we will. We will.

I'm confident we will. Chris, you're speaking our language, and it's just very refreshing to hear so many people from so many walks of life who aren't the younger generation also get it and also vouch for us. So thank you for everything you do. And I want to actually go full circle back to the Senate Housing, Banking, Urban Affairs Committee, where you got your nickname Crypto Dad, because you talked about how you tried to get your kids interested in the stock market and it was just not landing with them. But Bitcoin did land with them. Are they still interested in Bitcoin and crypto to this day, four years later? Totally.

So one of my nieces who was really in Bitcoin early and crypto generally, I think was a hollar since 2013. So she got in early, has done very, very well. One of my sons is a business consultant with a large consulting firm advising on some of the biggest blockchain experiments that are taking place on Wall Street right now, doing some really interesting work. My youngest son owns crypto. So yeah, they get it. Now, because I was at the commission, I didn't own crypto during my term there. I thought it would be inappropriate for me to be stating views on it while I could have benefited from it. So I didn't until I left in 2019, but I'm all in in so many different ways, both as a direct holder, but also as an investor in a lot

of angel startup companies that are doing some really, including crypto surveillance and crypto tools, so crypto infrastructure. So I'm a big believer in the space clearly and I'm very transparent about where my position is. Chris, I was once a kid before in the world of crypto that was a pessimist and only saw darkness in our future. I was trying to get my way into grad school, only saw debt, only saw more schooling ahead of me.

and I just did not believe in the future until I found crypto. And now I'm one of the most optimistic people that I know. I'm wondering if you saw the same transition happen in your kids, if their involvement with crypto also impacted their disposition about their sunny outlook of the future. Wow, that's really amazing. But it's not the first time I've heard that. I don't know.

It's actually something that maybe I'll ask my kids as to that I hope they're optimistic for the future. You know, we're a country that's always been optimistic about the future. future. And I think we need to return to that. You know, anything's possible in a free society. And that includes failure. That includes screwing up. But it also includes amazing achievements, both for one and themselves and their family, if that's what they choose to do, or achievements for society more broadly if they choose to do. That's the nature of a free society to give people those choices. And it can be harsh. It can have a detrimental impact. But it

And it also, I think, can be tremendously uplifting. And I hope we can rekindle that society because that's what powers us to our better achievements. And I think we're more aware, perhaps, of some of the failures in the past. And one thing I always tell my kids, you learn from your mistakes, you celebrate your achievements. You don't learn much from your achievements. You actually learn from your mistakes. But you've got to be able to make them because you'll never learn if you don't. Crypto Dad ending it in true Crypto Dad fashion with some fantastic advice for you who are early

in the crypto journey, which is frankly all of us. And Chris, it's just been a pleasure. Just when listeners already think you're the coolest dad ever, I'm going to let you in on a little secret. Chris John Carlo actually has a band. So I just learned this. You have a band, Chris. What kind of music do you play? Well, we're a cover band, but we're a party band.

We put on a good show. We're a lot of fun. We've got multiple singers and kind of performers in the band. We take old standards and we sort of redo them our own way. And we put on a good show. COVID has been a hit to our, you know, getting out and performing. But there's some clips of us around on YouTube. And I'm going to post another one in a couple of days on an anniversary of an event we did.

And hopefully this winter will be getting back out and start performing again in the New York area. But we've played some fun venues like the Stone Pony in Asbury Park where Bruce Springsteen started out. We've done some fun things. So we have a lot of fun. That's amazing. David is celebrated, but he's muted. He doesn't even know it. I was just about to ask.

Like any Bruce Springsteen songs? We do. We do hungry heart. We do a bunch of Stringston songs. I was born with Brun Springsteen. That was my first artist. I actually really cared about. Yeah.

No, I'm not. I just picked it up for my parents who were born in Philadelphia. Yeah. Right. Well, yeah. Yeah, Springsteen is he's the boss. There you go. He is the boss.

That is exactly right. Well, let's end it there. Christian Carlo, it's been such a pleasure to have you on. Thank you for filling us in on everything you are up to and your outlook on crypto. It's been a pleasure. Right. It's been my pleasure. Thank you very much.

David, thank you very much. Let's do it again sometime. Absolutely. We will do it again. We definitely salute Chris for fighting for our freedom in his role at the CFTC and then also outside as a private citizen action items for you today. Of course, we're going to do some research after we just heard there's some clips on the internet with Chris John Carlo playing some music. So we're going to

include those clips in the show notes. Also, we'll include a link to the speech we were talking about that Chris made in the banking, housing, urban affairs community that earned him the moniker, Crypto Dad. Also, you got to check out the book. It's Crypto Dad, the fight for the future of money. And you can order that on Amazon, all sorts of other retailers, of course. The third thing is become a triple point consumer of bankless. If you're listening to the podcast, We know you are at least a consumer of the audio version. If you're watching on YouTube, that's the second place to get bankless. The third is subscribe to the newsletter.

We'll include links for you so you can do all three of those things. Of course, we've got to end with risks and disclaimers. None of this has been financial advice. You won't hear that on bankless. Bitcoin is risky. ETH is risky. All of crypto is risky. You could lose what you put in.

But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot. Thank you.