In a recent interview with Coindesk, Christopher Giancarlo, who left the U.S. Commodity Futures Trading Commission (CFTC) at the end of his five-year term as chairman in April, said that the Trump administration purposely acted to pop the Bitcoin bubble in 2017 by allowing the introduction of futures products. He said:
“One of the untold stories of the past few years is that the CFTC, the Treasury, the SEC and the [National Economic Council] director at the time, Gary Cohn, believed that the launch of bitcoin futures would have the impact of popping the bitcoin bubble. And it worked.”
Prior to this, in a speech at the Pantera Summit held in San Francisco on Monday, Giancarlo mentioned that after the 2008 financial crisis, the 2017 Bitcoin Bull Run was the first major bubble. In order to address the situation, the Trump administration acted in a pro-markets manner by listing Bitcoin futures on the Chicago Mercantile Exchange (CME) and the CBOE Futures Exchange (CFE). This was announced by CFTC and went live on Dec. 18 2017, a day after Bitcoin’s price peaked at $20,000. He said:
“We saw a bubble building and we thought the best way to address it was to allow the market to interact with it,” Giancarlo told the crowd at the Ritz-Carlton on Nob Hill.
There have been different views on what led to the fall of Bitcoin, but Giancarlo referred to a research by the San Francisco Federal Reserve which has also credited the introduction of bitcoin futures as the reason for controlling a market driven by Optimists. He further said that a market without shorts has no pessimists.
“If you do believe it’s a ridiculous price but you don’t own, there’s no way to express that view, If you don’t have that derivative, then all you’ve got are believers [and] it’s a believers’ market,” Giancarlo said.
He believes that the lack of accessible ways to short has been one of the reasons for propping up prices of other crypto assets.
“The CFTC staff handled it strictly on procedural grounds, but at the leadership level I communicated with Treasury Secretary [Steven] Mnuchin and NEC Director Gary Cohn, and we believed that, should bitcoin futures go forward, it would allow institutional money to bring discipline to the value of the cash market,” Giancarlo told CoinDesk. “And that’s exactly what happened.”
Giancarlo said that the 2017 bitcoin bubble must be viewed in context of the financial crisis of 2008.
“Coming out of the 2008 financial crisis, the legit criticism of regulators was along the lines of: Where were they during the expansion of the real estate mortgage bubble, and why didn’t they take steps to pop that bubble when they could have?”
For Giancarlo the lesson was that regulators mustn’t be complacent when faced with a bubble – but they must act in a way that keeps markets free. In the case of 2017, permitting bitcoin futures presented just such an opportunity. He concluded:
“I believe it shows the power of markets to bring discipline to prices.”
One thing to be seen here is that if the Trump administration did pop the bitcoin bubble, then it is proof that Bitcoin and cryptocurrencies are no more immutable than any other financial product.