Can Libra Have an Impact on the Global Cryptocurrency Market?

There had been a lot of speculation on Facebook launching its own cryptocurrency and the social media giant managed to keep the project under the carpet for a significant amount of time. Leaks to the press occurred since late 2018 but it was only in June that Libra had been officially announced.

Although a stablecoin independent from the cryptocurrency market, the story had a major impact on large-cap tokens (Bitcoin, Ether, Litecoin, etc.) and today we’ll try to see what could happen in the near future.

Libra Project official

On June 18^th, 2019, Facebook published the Libra White Paper, ending several months of speculation on its intent to launch a cryptocurrency for its approximately 2.4 billion users. According to a Forbes post at that time, some people view Libra as “nothing more than Paypal”, “with the blockchain buzzword thrown on top”, while some optimistic people say it could be an important step forward towards greater adoption of cryptocurrencies. 

As the white paper mentioned above is stating, Libra will be a “simple global currency and financial infrastructure that empowers billions of people”. Built on a secure, scalable, and reliable blockchain, it will be backed by a reserve of assets (a.k.a. stablecoin).

 Based in Switzerland, the Libra Association will manage the cryptocurrency system, with an initial group of organizations which will become the founding members. PayPal, Mastercard, Visa, eBay, Vodafone, Coinbase, venture capital companies, and nonprofits, are part of the group.

Libra – a pain in your wallet?

According to marketwatch.com, behavioral economists and psychologists believe that electronic money usage makes people spend more. Using cash triggers the same parts of the brain that process physical pain. Since credit/debit cards had appeared, spending habits had intensified and the trend could continue if people will have access to Libra.

We must also add that social media platforms had been good at promoting spending thanks to peer pressure, which means you’ll have an addition temptation to be undisciplined with your finances.

Global finances influenced by Libra

Even though the fact that companies like Facebook,       Amazon, and Alibaba venturing into financial services could speed up transactions and cut costs in the developing countries, some experts believe it could also affect the stability of the banking system. The Bank for International Settlements (BIS) already mentioned that other than the benefits, negative points should also be considered.

In particular, the institution pointed towards a reduction in competition and the creation of data privacy issues. Hyun Song Shin, an economic advisor and head of research at BIS, spoke on the matter, highlighting some of the issues:

“The aim should be to respond to big techs’ entry into financial services so as to benefit from the gains while limiting the risks…Public policy needs to build on a more comprehensive approach that draws on financial regulation, competition policy, and data privacy regulation.”

Bitcoin influenced by Libra?

Facebook’s plan is to build its own cryptocurrency, independent from the cryptocurrency market, with a stable value pegged to the US Dollar. Even though these are details already confirmed, Bitcoin had been one of the cryptocurrencies which had been influenced heavily by the Libra news. The most popular cryptocurrency on the planet recovered impressively in 2019, and one of the reasons has to do with all the rumors surrounding Libra.

Intense media leakings started from April, which is exactly when the price of Bitcoin started to trend higher impulsively. Also, since the project had been officially confirmed by Facebook, there had been a negative influence on Bitcoin, given the Libra regulatory scrutiny that had emerged. We should expect the same for the foreseeable future, given that regulators in the US and Europe are already determined to come out with regulation for cryptocurrencies.

Given the size of Facebook, Libra could have an influence at a global scale and regulators will aim to regulate the entire cryptocurrency market. Any significant news on the issue could weight heavily on the price of Bitcoin.

Global cryptocurrency market and Libra

The social media giant already announced it plans to launch Libra in 2020, but the latest earnings report had shown a more pessimistic tone, given the regulatory uncertainty ahead. In case the company will manage to go ahead and launch the project, the entire cryptocurrency market could benefit since it will be an indication that broader cryptocurrency adoption is possible. How much the positive sentiment will be able to last is unclear, but Libra being used at a global scale will huge news.

At the time of writing, the odds of the project being launched in 2020 seem reduced, given the intense regulatory pressures. We should expect to have regulation for cryptocurrencies and the Libra project may need to be changed. US regulators are not convinced this is a reliable project and their opinion is far from changing. Facebook could delay the launching until waters will settle and that may not be the greatest news for the cryptocurrency market.