What are the opportunities for the Chicago Mercantile Exchange in the so-called “crypto winter”? "It's really about different views on the long-term potential of the cryptocurrency itself," said Michael Miller, an analyst at Morningstar in Chicago.
Crane spoke with Ed Tilley, CEO of Duffy and Cboe, about cryptocurrency and his company's interest in filling the gaps left by FTX. Below is an excerpt from the interview, edited for clarity.
Q: The Chicago Mercantile Exchange seems to be very cautious on cryptocurrencies at the moment. Not many products have been added yet. You have two. Is it an accurate image, and if so, how have you handled it so far?
A: I took it very cautiously. I believe, and have said so publicly, that there should be one use case for all products and there should be one use case for all CME listings. There are use cases for food, energy, interest rates, and cryptocurrencies. There should be a time when the use cases start to prove themselves. I have not seen it. I'm not saying it won't happen. We're very careful with this asset class because I think there has to be a use case; Otherwise, it is a purely speculative contract, which is not what we want.
s. What do you think is the most important use case and what is the potential of cryptocurrencies?
A: I don't know the potential of cryptocurrencies. I think the technology that cryptocurrencies run on, blockchain technology, is something that, if done right, can remove a lot of the friction in payments.
D. Let's take the encryption side. What do you think of its purpose and potential?
A: I don't want to speculate on your use cases in terms of payments in use today. Because I think if you investigate, and that's not my word, it's a government investigation, I think there are a lot of people who think that a lot of use cases for bitcoin and some of them are for nefarious reasons, they're not good use cases, are you? TRUE? ? It is not healthy.
So I think any government that wants to support cryptocurrency trading, whether it's bitcoin or ether or whatever, needs to get more involved in the currency itself and have a say. You can't have a few people identifying the monetary value they are creating in your basement.
Q: Do you need to configure?
A: I think the rules give credibility and help the world move forward and I hope you can get rid of some unscrupulous people. The thing is, if people really want to try a scam or a Ponzi scheme, and I'm not advising anyone on that scheme, but if they, just look at history, they haven't gone away, they keep coming. for you. People don't care what's going on.
Q: What do you expect to happen in Washington in this regard?
A: One of the things I've learned not to do is predict. I manage risk and that's what makes CME credible. We manage risks. We do not participate in the market. It doesn't matter up or down. We are here to manage risk for people who care if it goes up or down. This is an enviable situation because it gives credibility to the product that you are offering to companies. People know that you are not in an adversarial position to get involved.
If they ask me to participate (in Washington), I'm always happy. I have testified in Washington probably more than anyone in the financial services field, so I would gladly do so again if asked. If not, that's fine too. I'll say this: I'll give you an opinion. I think the trail warning signs are long gone, and if people think they're going to continue as fast as they have for the past few years, I think they're kidding.
There are many questions to ask and answer regarding the latest disaster. If someone is looking for a clear, quick and short answer to what is going to happen, I think they are crazy.
Q: I think cryptocurrencies are at a tipping point. For something to have a future, to use a general expression, several adults must be involved. Whether it's CME and Cboe, whether it's different banks, custodian banks. Would you like to be part of a group of adults helping to solve it?
a. I repeat. I believe that if cryptocurrency has a future, there must be use cases around it. It's not much different from issuing a credit card or paper check. When we got rid of the gold standard and went to fiat money, it was more efficient. If the product is more effective and there are use cases for the product, you need to involve central government. The price of these cryptocurrencies cannot be attributed to a single person. I also believe that if cryptocurrencies are going to survive in the long term, you can't have thousands of these things. They will become a couple if it works.
Q: Back to CME. If this turns out to be a serious impediment to something that, regardless of the tested use case or not, turns out to be something people do, would the CME be interested in providing trades on the token itself or stick to derivatives?
A: I have a lot on my mind, but I won't comment as it's just conjecture. As a publicly traded company, I'm sure you can respect that. This decision has not been made or discussed to the point where I am ready to commit to something like this.
Q: Obviously, we have a lot of very sophisticated investors who are embarrassed by the amount of money they lose because of this.
A: I don't know if it bothers you. not really. The only thing that I agree with what Bankman-Fried is saying is that VCs know that there is huge downside risk. I can't believe they think they know there's a lot of risk to lose when people don't run the business right. They understand that the idea failed, and that's fine, but they shouldn't fail because of bad behavior or a lack of understanding of what's going on in their organization.
Q: That's due diligence, right?
A: This is due diligence. You know, when someone walks around with a gadget in shorts and a T-shirt or, in the case of Theranos, a turtleneck and making weird noises, I tend to think if they have a gadget, they're selling it. I'm a little surprised that more people aren't doing their due diligence on this and engaging in full FOMO or whatever.
Q: They're talking about putting it in a 401(k) plan as an option for people.
A: It is the turning point, which I think is the most important. I think the people that have talked about it, whether it's Fidelity or someone else offering it to their 401(k), that's what people are looking for, wait a minute. Everyone talks about how little they lose in terms of the money they handle. And if it continues? How much will it be in six months? six weeks? six years? I dont know. You have to imagine that they will be bigger than they are now. So I think it's a little misleading for some of these people to say, "These are some of the building blocks of my business." Yes, and tomorrow? It could be much worse.
Q: The other side of the coin is the question. If there is a request to trade something and you don't really see its use, but there is a request, what is your philosophy that if I can't find a use for it, someone else can respond to the request?
A: If there was a demand to participate in a product, what would that product be? The product for me went from security or the future to roulette. There are different rules in the game than in my world. If it's a store of value, it must have some kind of use case. Right now, as I see bitcoin, it's not worth it at all. I think I'm hoping The reason I'm including it is that I'm hoping there's a use case for it, and if there isn't, I'm going to have to re-evaluate what we want to do with my team there.
He asked me when does this day come? I dont know. I guess we'll have to see what happens. There's a lot to unpack with what's going on from an organizational perspective. There is a lot to reveal about how decentralized finance wants to move forward.
I said earlier that pushes and sweeps are very important. Do we need to own stablecoins and cryptocurrencies to remove blockchain friction from payment methods? If so, should the government make sure they are involved? I think so. I think the Fed needs to get involved in this, as well as the US Treasury.
If you want to call it US Bitcoin or US stablecoin or whatever, as long as it has the seal of approval and scrutiny from the Federal Reserve and Treasury, I think the use case is clear and we'll continue. including it for distribution. It is not different from how the dollar or the euro and other currencies are quoted today.
s. With the crypto world collapsing, what are the opportunities for exchanges like CME and Cboe?
A: I only mentioned two products for a reason. Why I still don't know. It's hard for me to gauge what I think is an opportunity. I can look at each of my asset classes and see what opportunities have presented themselves over the years.
I'll be honest, I don't want to list it. When I was doing my development, I said, oh my gosh, we have to make this list because I need to understand if there are opportunities for the future and we have to learn from that. One of the things I said at the beginning when we checked in was that if it doesn't work, that's fine. If we learn, if there is a future in this, we will be much better off. He is really sorry. Five years later, and I still don't have that answer. I will probably be able to answer that question better 12 months from now than I can today.