For bitcoin — and for cryptocurrency brethren — a stretch of calm before the storm?
The official debut of a new cryptocurrency, Libra, may have stalled a rally in the marquee name in digital coins. Libra is the currency that will ride the new permissioned Libra Blockchain Network rails, also developed by Facebook.
The marquee name would be bitcoin, of course, which as of this writing was changing hands at a bit more than $9,100. That’s well above the low $8,000 levels seen earlier in the month, and yet off from the $9,250 levels seen just a day ago. Similarly, some other cryptos of note, among them ethereum (the second largest cryptocurrency as measured by market cap, at $28.5 billion) is off 2.7 percent on the day, to $266.40, as reported by Coinbase. XRP is trading down several basis points to about 43 cents each.
In astrology, the sign of Libra is represented by a set of scales. And while Libra’s launch has not spelled doom for cryptos, sending them crashing from the zenith of a rally that has been underway for several months, neither has it given a “floor” for cryptos.
A scale, of course, weighs and gives truth to things being compared, on a relative basis.
The details include the fact that Facebook has structured Libra so as to distance itself from being the sole force operating the network and the currency. Libra assets, including the currency and its reserves, will be managed by an independent, non-profit association that includes, to start, 28 financial services and payments stakeholders, among others. Libra is governed by a Managing Director, a Council and a Board. No one Member has any voting power beyond one percent of the value of their shares. Each Member will be asked to contribute $10 million to help fund operations in order to have a seat at that table.
With the launch of Libra as a currency, the flag that crypto advocates now wave is one of awareness: As in, more people will be aware that cryptos exist as an alternate payment method.
“Facebook is about to introduce hundreds of millions, maybe billions, of people to the concept of cryptocurrencies,” the WSJ quoted Andy Bromberg, the founder of CoinList, as saying. (CoinList is a platform for capital raising geared to token offerings.) “It’s hard to think of a better accelerant.”
There are some differences though, between bitcoin (we will use bitcoin as proxy here for most, though not all digital coins) and Libra. There will be a Libra reserve that is collateralized by a basket of low-volatility currencies, which is intended to reduce some of the volatility that has marked the cryptocurrency space for years — and which, the Libra team says, makes it appealing to people living in developing world economies where currency fluctuations are more volatile.
Then there is the reputational backing behind it. Facebook, to put it mildly, has some name recognition — billions of users, yet no shortage of front-burner reputational issues over data privacy that give regulators pause. Recruiting the “who’s who” in payments and FinTech to sit at the table is a well-crafted strategy to blunt the sting of any Facebook reputational backlash. But keep in mind: the only commitment made by those players is to now work through the charter and its governance principles to see if there is a “there” there.
Missing at the table are the central bankers and regulators, who have not taken kindly to currencies that require they relinquish control of their fiat money. If using the Libra network means using Libra currency, then adoption for both may be a long time coming. Then again, achieving critical mass may be easier to attain than might be seen with bitcoin’s existence across such far-flung exchanges and price volatility.
As noted in this space Tuesday by Karen Webster, the launch — which carries with it the digital wallet known as Calibra, where transactions happen across blockchain — seeks to work off a basket of low-volatility currencies such as the dollar and the Euro. As Webster said, too, the goal may be to ignite eCommerce — a grand ambition that has yet to (and may never?) be proven.
Against this backdrop, though, for now the question is which “currency” prevails.
Some think that a rising tide for one boat — that would be Libra — is a sea change for all boats. Then again, it might spell the death of bitcoin. Bitcoin, with its lack of “guarantee,” stability, governance structure and use cases, may now really cement its future as being the currency of choice when transacting on the Dark Web.