Facebook’s Libra Cryptocurrency is on the Rocks, and it Hasn’t Launched!
When Facebook announced earlier this year that they were bringing out a cryptocurrency the crypto market had a mixed reaction. The Libra cryptocurrency met with a bit of fanfare from those who could see the potential of a cryptocurrency being pushed on a mainstream platform but for the most part it was met with apprehension. That apprehension quickly turned sour and voices of derision were soon heard from many avenues.
One of these voices was Donald Trump who as the president of the United States is in a very powerful position and he simply stated, if Facebook wanted a cryptocurrency then they could, providing they submitted to the strict financial regulation that banks do.
Other market commentators felt that Facebook’s Libra could spell disaster for other longstanding cryptocurrencies like Bitcoin, Ripple and Ethereum because unlike the latter, Facebook had a huge marketing platform at its disposal. Oddly then, it transpired that Donald Trump’s comments were actually well received among much of the wider cryptocurrency community.
Why Regulation Will Cripple Libra
Facebook had hoped they could create a cryptocurrency that would enter the existing crypto market and generate revenue in the same way existing cryptos do, but of course with the ease of marketing it to a much wider audience.
Donald Trump singlehandedly dashed those dreams and although Facebook likely has the financial liquidity to operate as a bank, it lacks the transparency that financially regulated firms have. Banks have to go through stress testing and also have to meet very high advertising and product standards. In the US it is strict, in the EU it is even stricter.
Both are the major territories where Facebook would be best placed to enter the market. This has meant now that Facebook is in a precarious position.
And This Isn’t Just Speculation
Five of Facebook’s Libra financial backers have now pulled the plug completely. The threat of closely scrutinised accounts and comprehensive tax audits are normally enough to make most big companies a bit jittery and even (as I am sure) everything is above board, it is an extra set of very costly hurdles to jump through in the blind hope that Libra gains success enough to become profitable.
Facebook is literally looking down the barrel of a loaded regulatory gun at the moment and backers pulling out is a good indication of things to come. Especially given that the heat has really been applied yet. I am sure that as soon as solvency tests, ring-fenced accounts and meeting financial product standards get involved in practice, many more backers are going to get cold feet and that is if Facebook doesn’t pull the plug first – because let’s face it, they haven’t had a good track record with data regulation – financial regulation is that and then some!