News & Analysis

Adoption of Crypto: New Hope with Libra?

June 20, 2019

By Deepta Bolaky
 @DeeptaGOMarkets

A New Digital Currency

From banning all ads promoting cryptocurrencies back in January 2018, Facebook’s move into the digital world is definitely grabbing attention. The social media giant shared its plans to launch a new digital wallet- Calibra and a new digital currency – Libra.

At first glance, the launch of a new digital currency by one of the largest social networks and its partners is seen as having the potential of changing how people view the cryptocurrency market. The company’s international reach provides them with the advantage of influencing its users and rebranding cryptocurrencies.

The Strike at the Right Time

Facebook is bringing the Libra project at a time where people are losing faith in the banking industry. In Australia, it was reported that 33% of Australians lost trust in banks in the last 12 months following the Royal Commission scandal. The percentage might not be as high for other major countries, but people remain wary of banks and their flaws since the financial crisis.
Mark Zuckerberg brings this project in the “aim” to address key banking issues around the world:

  • For many people around the world, even basic financial services are still out of reach: almost half of the adults in the world don’t have an active bank account and those numbers are worse in developing countries and even worse for women.
  • The cost of that exclusion is high — approximately 70% of small businesses in developing countries lack access to credit and $25 billion is lost by migrants every year through remittance fees.

The company is promising a digital currency that will be more stable, cheaper and easier as a medium of exchange which can shake up the financial industry.

The Mixed Response

Good news or Bad news?

It is definitely big news – Put in your money, Receive Libra to Save, Send and Spend more cheaply and withdraw at any time. It sounds simple, but the news is already causing a backlash in Washington.

There are a lot of questions surrounding Libra and the regulations around it. Given the data scandal, its move in the digital world does not bode well with Congress:

  • Democratic Rep. Maxine Waters: “Given the company’s troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action.”
  • Rep. Patrick McHenry: “While there is great promise for this new technology in fostering financial inclusion and faster payments, particularly in the developing world, we know there are many open questions as to the scope and scale of the project and how it will conform to our global financial regulatory framework.”
  • Senator Sherrod Brown: “Facebook is already too big and too powerful, and it has used that power to exploit users’ data without protecting their privacy. We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight.”
  • Senator Mark Warner: “The idea that we are going to turn over our financial data and information to that company, I think they have a big uphill effort to try to convince Americans that they ought to trust in Facebook’s proprietary interest in keeping your data secret.”

Bitcoin

The bellwether of the cryptocurrencies is, without any doubt being compared to Libra. Recently, the resurgence of cryptocurrencies amid geopolitical risks and slowing global growth has raised questions about whether digital assets are the new safe-havens.

In light of the above, Bitcoin is being viewed as the digital commodity while Libra as a digital currency. The distinction is mainly due to how liquid one is, compared to the other.

The distinctive characteristics of Libra may pose a threat to other major cryptocurrencies like Bitcoin, but if Facebook enters the payment space with digital asset, it will still help to change the way people view the cryptocurrency market. Overall, it is a net positive for the crypto market.

The Reaction in the Markets

Facebook’s share price jumped following the news of the Libra Project. But, the heavy criticism around the company’s shift in the global financial services and a hearing set for July 16 by the US Senate Banking Committee has somewhat dampened sentiment.

As of writing, the company’s share price was still up for the week $187.36.


Source: Bloomberg Terminal

Bitcoin rose to a high of $ on the hype behind Facebook’s move into the digital assets but closed in negative territory after 6-day winning streak following the official announcement of Libra.


Source: Bloomberg Terminal

Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.