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How Will Facebook’s Libra Impact Cryptocurrency? Much has been made in recent weeks over Facebook’s decision to launch Libra. This would be the company’s version of a cryptocurrency similar to Bitcoin (BTC). This announcement has already been credited with driving up the market value of BTC and other cryptos in recent weeks. However, not everyone in this industry is ready to embrace Libra as a legitimate crypto.
In a recent opinion piece by Noelle Acheson for Coindesk.com, she openly questions Libra’s pending status. Her piece was geared towards institutional investors in the free newsletter Institutional Crypto.
Her general contention is that Libra is not a cryptocurrency. Facebook is looking to brand it as “a stable global cryptocurrency” and the media has latched onto that concept. The difference is more than semantics. It can impact how it is actually used and eventually regulated. It can also impact how stablecoins and blockchain-based securities are perceived by institutional investors.
The main reason Libra is not a crypto is decentralization. BTC and other cryptos exist in a decentralized environment that is not tied to financial institutions. This keeps any one group from controlling transactions. The founding group behind Libra have indicated it would move towards a “more decentralized” system over time. However, it would render control to actually accomplish this goal in a centralized business environment.
Indeed, The value of Libra will be dictated by outside forces. Cryptos are based on the underlying technology of blockchain. They are also subject to uncontrollable market conditions. The common ground is that both move on blockchain.
Libra moves as a stablecoin tied to fiat currencies and other financial securities. It will be backed by a “basket of bank deposits and short-term government securities”. In reality, it resembles an ETF more so than a true crypto.
Regulators approach to stablecoins has yet to be clearly defined. In a conference in June, SEC Deputy Director Elizabeth Baird was asked for her view on stablecoins. The simple response was, “I think they’re securities.”
Facebook is looking to Libra to become the de facto payment mechanism on a global scale. It is very likely that it will be defined as a security. This implies a capital gain or loss in its traded value.
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