The outgoing chairman of the Commodities and Futures Trading Commission (CFTC) has said that blockchain technology could have helped global regulators handle the 2008 financial crisis in a very different way.

In a recent interview with Bloomberg, Christopher Giancarlo said that he believes “blockchain has tremendous potential in the market”.

He said that he was there in the 2008 financial crisis, “when financial market regulators had no better way of assessing the counterparty credit exposure of one large financial institution to another.”

Giancarlo claimed that regulators were actually calling brokers for credit default swaps to understand where the risk premium in the market was, stating: “They were guessing at the global notional amount of exposure carried at the time of the crisis.”

Knowing the exposure of a financial institution

At the time, he said he believed there was around $400 billion in credit default swap protection written against Lehman Brothers, but then went on to clarify that we “now know that the total exposure was less than $8 billion”.

“If we knew in 2008 that the exposure of Lehman Brothers was $8 billion, the response of global regulators and market overseers could have been a very different response than the response that came.”

The commissioner went on to say that “blockchain gives us the prospect that someday, we may know with precision the exposure of one financial institution to another.”

“We may be able to map the entire financial regulatory system – they call it financial cartography, and that is what blockchain gives us.”

Talking about the power of using a transparent and immutable ledger, Giancarlo concluded that “from a regulator’s point of view, this is a tool with enormous potential, and one we want to be at the forefront of exploring and understanding.”

On Bitcoin and other digital assets

On the topic of Bitcoin, Giancarlo – or ‘Crypto Dad’ as he is fondly referred to on crypto Twitter – said that it has been fascinating how Bitcoin “became a much more mature product when the Bitcoin future was launched” in late 2017. He went on to say how this “allowed institutional money to come into the marketplace” for the decentralised asset class.

In a hint to a possible Ethereum futures contract, the CFTC chairman went on to say: “As we see additional asset classes come on the scene, they are approaching the market for the development of a spot market and also the development of a derivative market as well.”

Giancarlo, who is due to conclude his five-year term in 2020, finished off by revealing that “as a derivative market regulator, we are in conversations with major digital asset classes on the horizon right now”.

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