All eyes are focused on the battle between Facebook Libra and the US Government. 2019 has been quite an interesting month for the cryptocurrency market, as cryptocurrencies are finally being publicly discussed at the highest congressional level. Even President Donald Trump mentioned Bitcoin in his tweets, as you probably know.
Besides being exciting, July 2019 has also been quite volatile, with Bitcoin recording daily losses or gains of over $1,000 on several occasions. It is just a matter of coincidence that the largest coin by market cap is currently trading at around $10,600 as of July 20, 2019 – the same level where it started the month. In the meantime, Bitcoin has gone as high as $13,129 and as low as $9,163 throughout the month.
Also, it’s worth mentioning that the BTC trading volume is maintaining at a very high level. For example, in the period between June 20 and July 20 2019, Bitcoin saw the largest 30-day trading volume ever, according to CoinMarketCap data.
But the price of Bitcoin is currently heavily dependent on a crypto project that hasn’t even been launched – it’s about Facebook Libra. The social media giant announced its stablecoin at the end of June and sparked a massive wave of reactions from regulators and politicians worldwide, as they fear of a global currency that will be controlled by corporations instead of governments.
The US government couldn’t stand aside and keep silent about a project that might threaten the dominance of the US dollar itself at some point. Thus, Congress required more explanations from Facebook’s subsidiary Calibra, which is responsible for the Libra project. Meanwhile, several officials expressed their concerns that the upcoming stablecoin could be used for criminal activities, including money laundering and terrorism financing.
Ok, the US is coming to grips with Libra, but what does it have to do with Bitcoin? Well, the oldest virtual currency out there is directly involved in this discussion, given that a nod or a rejection of Libra would heavily impact the general approach on cryptos, including Bitcoin. While the US government is currently deciding the fate of Libra alone, the crypto community is interpreting its decision in terms of approval or disapproval of the entire crypto industry, with Bitcoin at the lead.
Reactions from US Politicians
So what do US officials say about Bitcoin and Facebook Libra? Let’s analyze their reactions chronologically:
Jerome Powell – On July 10, Jerome Powell, Chairman of the Federal Reserve, revealed that the US central bank had met with FB representatives to establish a working group that would answer questions regarding Libra. He hinted that the project couldn’t make any progress without approval from US regulators. Speaking in front of a Congressional committee, Powell said:
“Libra raises serious concerns regarding privacy, money laundering, consumer protection, financial stability. These are concerns that should be thoroughly and publicly addressed.”Source: CNBC – Facebook Libra Cryptocurrency ‘Serious Concerns’
During the same hearing, Brad Sherman, a Democratic member of the US House of Representatives, criticized Facebook Libra, saying that it had the potential to transfer power from the US government to terrorists, tax evaders, and drug dealers while hitting USD’s status as a world reserve currency.
Donald Trump – everyone knows that the US President likes to voice his thoughts via Twitter, but the crypto community was surprised to see him mentioning Bitcoin. On July 11, Trump tweeted that he wasn’t a fan of Bitcoin and other coins, which, according to him, are not money. He even said that crypto’s value is based on thin air. As per Trump, Bitcoin and its brethren may support illegal behavior.
Speaking about Libra, the president said that the new “virtual currency” would have little standing and dependability. He praised the US dollar as the most dominant currency in the world thanks to its reserve currency status and hinted there was no need to replace it.
Steven Mnuchin – on July 15, US Treasury Secretary Steven Mnuchin held a press conference focused entirely on Libra and Bitcoin, which took the crypto market by surprise. He openly criticized Bitcoin for being used by criminals. Mnuchin said:
“Cryptocurrencies such as bitcoin have been exploited to support billions of dollars of illicit activity like cyber crime, tax evasion, extortion, ransomware, illicit drugs and human trafficking. Many players have attempted to use cryptocurrencies to fund their malign behavior.”Source: Mnuchin holds Briefing on Regulating Cryptocurrency
The secretary clearly stated that he wasn’t comfortable with the launch of Libra. He even referred to cryptocurrencies as a “national security issue” and implied that Facebook Libra would have to go through several regulatory checks before even testing its virtual currency. All in all, Mnuchin is defending his boss, saying that Trump was right about not being a fan of Bitcoin.
Nevertheless, despite Mnuchin’s fierce criticism, some crypto experts were satisfied with his reaction and said that this meant total validation of Bitcoin, as Mnuchin never mentioned of banning the coin. Moreover, the BTC price itself reacted with a short-term rebound, suggesting that it was bullish on the comments.
In a Thursday (July 18) interview with CNBC, Mnuchin said that the crypto community should be ready for “very, very strong” regulations enforced on existing financial rules to stop criminals using cryptos for illegal activities.
Other US officials – after Mnuchin’s press conference, Facebook had two hearings – the first one was in front of the US Senate Banking Committee and the second one before the House Financial Services Committee.
David Marcus, head of Calibra, defended the Facebook Libra project in front of entire groups of politicians and regulators, who had many things to say about the new virtual currency.
Several senators, like Sherrod Brown, raved that Facebook Libra was dangerous, while others posed provocative questions about Libra’s risks.
In the end, Marcus agreed that Facebook Libra wouldn’t make any further step without regulatory approval. Thus, Libra will have to comply with all US regulations. The project won’t be launched until lawmakers give the green light.
The US government is not the only one to feel threatened by a new global currency. Shortly after Facebook announced its crypto project “Libra”, officials from many other countries expressed their concerns, with Russia and India even admitting that Libra would be illegal on their territory.
French Finance Minister Bruno Le Maire stated that Libra had the potential to become a sovereign currency. Elsewhere, a German politician called Mark Zuckerberg’s company a “shadow bank.”
Philip Lowe, Governor of the Reserve Bank of Australia, commented:
“I think there’s a lot of water to flow under the bridge before Facebook’s proposal becomes something that we’re using all the time. There are a lot of regulatory issues that need to be addressed, and they’ve got to make sure there’s a solid business case.”Source: CNBC – Facebook Libra Cryptocurrency Regulatory Warnings
Similarly, Mark Carney, Governor of the Bank of England, said that Libra should expect massive regulatory resistance worldwide.
What Does Facebook Libra Want to Achieve? Why is the US Government Afraid of It?
Facebook Libra’s whitepaper says that the upcoming stablecoin is meant to be a global currency that will “work for everyone.” Facebook says it won’t have total control over the new coin, as the network will be governed by the Libra Association – a consortium of about 100 entities.
To become a member, companies have to pay $10 million each. Corporate giants like Visa, Mastercard, PayPal, eBay, Uber, Vodafone, Spotify, and Coinbase have already paid the price and are part of the association. It also includes famous venture capital firms like Union Square Ventures, Andreessen Horowitz, and Thrive Capital. Thus, Facebook Libra aims to generate about $1 billion in revenue from the membership fee alone.
The stablecoin will be backed by a basket of fiat currencies, bank deposits, and government securities. Facebook Libra will allow Messenger and WhatsApp users to purchase goods, make transfers, store or exchange the stablecoin for fiat or digital currencies. It means that 2.4+ billion Facebook users worldwide will have access to a new, convenient form of money, which drives the US government crazy.
If you paid close attention to the narrative of most of US officials criticizing Libra and Bitcoin, you’d note that they all share the same concerns – crypto’s use in money laundering and terrorism financing. These charges seem as if they are copy-pasted. Interestingly though, the US government doesn’t want to admit that criminals, drug dealers, money launderers, and terrorists have grown quite well on the US dollar for decades. Why aren’t the politicians demonizing the US dollar then?
While a reasonable regulatory framework would make sense for any new form of financial instrument, the US government is actually afraid of losing dominance in the financial world. As they say – anyone who controls the money, rules the world.
New York Representative Alexandria Ocasio-Cortez blamed Libra for serving corporations, during the second day of hearings. However, she forgot to mention that the Fed, which issues the US dollar, is a private entity itself.
So there is a lot of duplicity in the government’s charges and concerns. The US is interested in maintaining its global control, and it will undertake all necessary measures to prevent anything that would undermine its dominance.
How Does Facebook Libra Differ from Bitcoin?
Blockchain – Bitcoin is the first proponent of blockchain, the most popular form of the distributed ledger technology (DLT). It uses a public and decentralized version of blockchain led by multiple validators called miners. Each node can become a miner by solving complex mathematical problems – this consensus approach is called Proof of Work (PoW). On the other side, Facebook Libra uses a so-called permissioned blockchain, in which the network is governed by the 100 members only. They equally share the governing powers, but users cannot influence the network.
Decentralization – Bitcoin is a decentralized network spread globally. As mentioned, every node can become a miner if it has the technical capability to compete for this status. No government, company, or entity controls Bitcoin’s network. In the case of Libra, the network is not truly decentralized, even if Facebook Libra claims so.
Use Cases – while Bitcoin’s original whitepaper says that the coin is a peer-to-peer payment system that avoids banks, the cryptocurrency has been mostly used as an investment instrument. It’s often referred to as digital gold. The term “HODL” also points to Bitcoin’s nature as an investment option rather than a payment means. On the other side, Libra’s main goal is to be used in international payments and money transfers.
Regulation – Bitcoin is a decentralized system that has no intermediaries. When it comes to Facebook Libra, it involves a group of intermediaries who become responsible for the coin’s governance. The existence of accountable middlemen totally changes the regulatory approach towards Libra.
While Libra is very different from Bitcoin, we can say that it is having a significant impact on the largest cryptocurrency by market cap. Any favorable or unfavorable decision from the US government about Libra would directly affect Bitcoin’s price. This is why the crypto markets are impatiently waiting to see how the Libra saga ends.
Facebook Libra Final Note
The US government might delay the launch of Libra, but it won’t stop the process of digitization of money. The concept of decentralization is too catching to ever be suppressed.
On July 15, the International Monetary Fund (IMF) published a report called “The Rise of Digital Money,” where it argues that digital money might become real competitors to traditional money and even replace it. The IMF says that stablecoins are the most popular form of e-money and that they have the potential to transform how payments are carried out.
In conclusion, Bitcoin investors should closely watch the evolution of Libra, given that any news related to it would eventually have an echo on the BTC price. So be ready for a bullish explosion when the US government finally endorses Libra.