"As a Dad"
Cryptocurrency markets have taken a beating over the past six weeks by a relentless barrage of bad news and trash talk. Just when it seemed like nobody was willing to toss crypto a frikkin bone, things got really weird and help came from the least likely place - Federal regulators in D.C.
A palpable hush fell over the Senate briefing room and empathetic nods were almost audible as CFTC's Chris Giancarlo began his testimony with the words "I'd like to begin with a slightly different perspective .... and that is, as a dad".
Huh? As a dad? You mean no trash-talk about dark web fraudsters, money launderers, and exchange hacks? WTF is going on?
In the down-the-rabbit-hole, through-the-looking-glass, twilight-zone, cattywampus world of crypto, it seems like nothing can surprise, until none other than the CFTC chairman opens a 2-hour senate hearing on cryptocurrency with the heart-warming story of how he and his wife tried to interest the kids in investing - to no avail - until bitcoin came along.
"We set up small brokerage accounts, but other than my youngest buying some shares of a video game company, we couldn't pique their interest." Then, suddenly, over the past year, everything changed. "They were all talking about bitcoin - asking me what it was and should they buy it."
We have become so inured to old-school financial big-wigs obtusely mischaracterizing cryptocurrency as if a digital asset were nothing more than an alphanumeric string with no intrinsic value, that a balanced approach from a conventional financial regulator who has actually done their homework can be astonishing, even shocking.
The first indication that we were about to witness something extraordinary came when Chairman Clayton of the SEC opened the hearing by clearly defining a three-pillar conceptual framework - cryptocurrencies, “a replacement for dollars;” ICOs, “like a stock offering;” and distributed ledger technologies, or the technical framework generally known as blockchain.
Giancarlo later stated a remarkable but rarely acknowledged truth about blockchain - "if there were no bitcoin, there would be no distributed ledger technology - it grew out of that technology initiative."
Giancarlo scoffed (I was looking for an eye-roll) at the notion that CFTC would be challenged by crypto's legendary volatility.
"The spot market for bitcoin is not a regulated marketplace. At the CFTC we're familiar with that because we generally don't have regulatory authority over the spot markets for which derivatives apply. We regulate derivative markets and the underlying spot markets we surveil. We don't have the ability to set the standards for those markets, and that's what we have today in bitcoin."
The Price of Coffee
That's a great point. The fact that weather, crops, and prices of coffee in markets from Africa to Indonesia to Brazil must be coordinated into a single "spot" market on which to base a futures contract is not much different from coordinating worldwide cryptocurrency exchanges. A complex task to be sure, but not a new one for CFTC.
While he did concede that cryptocurrency's volatility exceeds that of most sovereign currencies, he made short shrift of any concerns by reminding the Senators that the raison d'etre of CFTC is to develop derivative instruments that allow investors to manage volatility and risk.
Everyone was in agreement that blockchain is a transformative technology that could have as-yet unimagined widely-sweeping disruptive potential across multiple industries.
Chairman Giancarlo brought up the ironic and fascinating historical counterfactual that blockchain could have played a mitigating role in the financial crisis of 2008 - "... if it had been available in 2008, if we had been able to see the counterparty credit exposure of one bank to another bank in real time with precision - that would have enabled much more precise policy choices that had to be made in a rush without good data.
I wonder if anyone else was considering the ironic fact that bitcoin and blockchain were born out of the ashes of that very crisis, by people who had lost trust in their so-called "trusted third parties" - their banks and governments.
He Had Us At HODL
The moment Giancarlo earned his crypto-superhero cape was when he officially introduced the crypto-slang expression "HODL" into the congressional record. Check out the video.
Throwing Around Insane Numbers
I found it hilarious to see that even old-schoolers at dull Senate Subcommittee hearings can get riled up enough to start throwing around insane numbers. Senator Warner, in addressing the "systemic relevance" of cryptocurrencies, suggested that if cryptocurrency sustains its current growth rate it could reach "north of $20 trillion" by 2020. That's TWENTY TRILLION with 2 "T"s. You heard it here first.