Chris Giancarlo: Political processes are reshaping crypto regulation, traditional finance needs clarity urgently, and prediction markets will transform decision-making | The Pomp Podcast

Key Takeaways

• The political process significantly influences crypto regulation.
• Traditional financial institutions require regulatory clarity more urgently than crypto builders.
• Legislative clarity for crypto is more likely to be achieved than not.
• Crypto is seen as a better architecture for finance, essential for future systems.
• A sound legal framework for crypto is crucial to prevent political hostility.
• Prediction markets offer more accurate forecasts than traditional polling.
• The CFTC is poised to play a significant role in market regulation.
• There is a need to distinguish between valuable and non-conducive crypto tokens.
• Fraud in the crypto space is still considered fraud under the law.
• Regulators should focus on creating frameworks for legal products rather than banning them.
• The SEC and CFTC have distinct roles in market regulation.
• The CFTC’s market structure enhances information sharing and price discovery.
• Competition between the CFTC and SEC has led to improved regulatory practices.

Guest intro

J. Christopher Giancarlo is Senior Counsel and Co-Chair of the Willkie Digital Works practice at Willkie Farr & Gallagher LLP. He previously served as Chairman of the US Commodity Futures Trading Commission (CFTC) from 2017 to 2019. During his tenure, he oversaw the launch of the first bitcoin futures products and advocated a Do No Harm approach to blockchain technology.

The impact of political processes on crypto regulation

• The political process has had a significant impact on the regulation of crypto.

  — Chris Giancarlo

• The first phase of the Trump administration aimed to remove negative policies and ineffective regulators.

• Phase one was to just get rid of the bad policy the suppression of crypto.

  — Chris Giancarlo

• Paul Atkins and Mike Selig were key figures in regulatory changes.
• The focus was on replacing rogue regulators with effective ones.

• The bad policy has really been stopped.

  — Chris Giancarlo

• Understanding the phases of regulatory change is crucial.
• Political dynamics continue to shape the crypto regulatory landscape.

The need for regulatory clarity in traditional finance

• Traditional financial institutions need regulatory clarity more than crypto builders.

• Crypto doesn’t need the clarity act as much as tradfi needs clarity act.

  — Chris Giancarlo

• Without clarity, traditional finance risks losing competitive ground.
• The potential for overseas development poses a threat to US markets.

• They’re gonna go overseas and build and then ten years later they’re gonna come back and eat your lunch.

  — Chris Giancarlo

• The urgency for traditional finance to adapt is emphasized.
• Legislative processes should be prioritized over judicial ones for regulatory clarity.

• That’s no way to run the world’s largest economy.

  — Chris Giancarlo

The likelihood of achieving legislative clarity for crypto

• There is a better chance of achieving legislative clarity for crypto than not.

• It’s probably a better chance it gets done than it doesn’t get done.

  — Chris Giancarlo

• Political dynamics favor legislative action on crypto.
• The evolving role of crypto in finance supports legislative efforts.
• A sound legal framework is necessary to protect innovation.

• We all need a sound legal underpinning.

  — Chris Giancarlo

• Stable legal frameworks foster innovation in the crypto space.
• The potential impact of political climates on innovation is significant.

The role of prediction markets in modern finance

• Prediction markets can provide more accurate forecasts than traditional polling.

• You’re incentivizing people not to give you their bias but to give you their informed opinion.

  — Chris Giancarlo

• Prediction markets are expected to become more prevalent and regulated.

• I think the same thing’s gonna happen with prediction.

  — Chris Giancarlo

• The evolution of prediction markets is likened to ride-sharing services.
• Prediction markets offer reliable information for decision-making.
• The mechanics of prediction markets differ from traditional polling.
• The societal benefits of prediction markets are highlighted.

The evolving authority of the CFTC in market regulation

• The CFTC has historically been undervalued in its market authority.

• The role of the CFTC has been given short shrift in a lot of these cases.

  — Chris Giancarlo

• The CFTC is now poised to intervene in significant cases.
• The agency’s evolving authority is crucial for crypto markets.
• The CFTC will address fraudulent activities in prediction markets.

• They will write the rules they will work out these issues.

  — Chris Giancarlo

• The CFTC’s historical role in traditional markets informs its approach.
• Regulatory clarity is needed to distinguish between valuable and non-conducive tokens.

The societal benefits of prediction markets

• Prediction markets allow individuals to trade on their knowledge, aiding price discovery.

• The beauty of these markets right you know in insider trading under American law.

  — Chris Giancarlo

• Insider trading laws should not apply to prediction markets.

• We actually want people to trade on their knowledge.

  — Chris Giancarlo

• Prediction markets serve a different purpose in providing public information.
• The distinction between insider trading laws and prediction markets is crucial.
• Prediction markets disseminate valuable information to society.
• Their role in information dissemination and price discovery is significant.

Balancing regulation and innovation in emerging technologies

• Innovations like crypto should not be dismissed due to potential risks.

• We shouldn’t simply say well because there’s possibility let’s get rid of this whole new innovation.

  — Chris Giancarlo

• Thoughtful regulation is needed to address potential issues.
• Insider trading laws apply in limited areas but can extend to other contexts.

• Our law has recognized only limited areas when it applies.

  — Chris Giancarlo

• Fraud in the crypto space is still considered fraud under the law.

• If you commit fraud it is fraud.

  — Chris Giancarlo

• The legal framework surrounding fraud in crypto is emphasized.

The distinct roles of the SEC and CFTC in market regulation

• The SEC oversees markets for capital formation.
• The CFTC oversees markets for risk transfer and risk reallocation.

• The SEC oversees markets for capital formation CFTC oversees markets for risk transfer.

  — Chris Giancarlo

• Understanding the functions of these regulatory bodies is crucial.
• Their distinct purposes are key to market oversight.
• The CFTC’s market structure encourages information sharing.
• Better price discovery results from the CFTC’s approach.
• The differences between CFTC and SEC frameworks are highlighted.

The CFTC’s leadership in crypto regulation

• The CFTC was the first regulator to create a full regulatory structure for crypto derivatives.

• It was the CFTC this first regulator not just in the United States but in the world.

  — Chris Giancarlo

• The CFTC’s model has become a global standard.
• This leadership is significant for understanding regulatory evolution.
• The competition between the CFTC and SEC has led to better practices.

• The two agencies because they’re in constant competition have become better.

  — Chris Giancarlo

• Inter-agency competition drives improvements in regulatory effectiveness.
• The dynamics between regulatory agencies impact governance.

The importance of establishing a regulatory framework for future generations

• We owe it to future generations to establish a proper regulatory framework for crypto.

• We owe it to our kids and our grandkids to get the regulation right.

  — Chris Giancarlo

• Thoughtful regulation is crucial for the evolving crypto landscape.
• The significance of regulatory frameworks for future generations is emphasized.
• A proper regulatory structure supports innovation within a legal framework.
• The balance between regulation and innovation is vital for progress.
• Regulatory responsibilities include creating frameworks for legal products.
• The implications of banning legal products are considered.