Libra is the name of the cryptocurrency that Facebook will launch next year and that promises to become a true revolution for the global financial system.
From this column, for years we have been analyzing together the technological and financial advances involved in the development of fintech in general and Facebook and Bitcoin in particular. Therefore, we believe that we can add value to what has been written on the issue of Libra in both local and foreign media so that our readers can benefit.
Below, our forecast about what can happen in the short term.
Bitcoin: more than 10 years bothering the financial establishment
Bitcoin is already more than 10 years old and, when months ago many specialists believed him dead and predicted his collapse to insignificant values, he responded vigorously to show that he is in very good shape.
After surviving a complicated 2018, so far in 2019 it was claimed to become the best investment. At the time of writing this note, since January, it has risen above 197%. Despite its short life, it already placed 8 times as the most profitable asset globally.
The cryptocurrency lighthouse dazzles the financial industry, which begins to understand the strength of the phenomenon. Fidelity, the world’s largest asset custodian, announced that it will begin working with Bitcoin and Ethereum. Samsung promised that its new Galaxy S10 models will come with cryptocurrency wallets.
These announcements of large companies feed the growth of the crypto market, whose market cap is currently around 300,000 million dollars. Of that total, 62% is explained by Bitcoin.
As you can see, the much-commented explosion of the “Bitcoin bubble” may not have been so much. More quietly than before, the cryptocurrency star again challenges the more traditional financial establishment today.
The announcement of the launch of the Libra cryptocurrency generated fierce criticism within European central banks and in numerous media that seem not to understand (or understand too well) the most important aspects of this new project of the Mark Zuckerberg company.
Facebook has created a consortium of top-level companies (including Visa, Uber, Mastercard, Spotify, eBay, and Argentina’s Mercado Libre) that contributed $ 10 million per head to the revolutionary cause, turning all participating firms into founding partners.
What are they creating as a team? The Swiss-based Libra Foundation, which will be a non-profit association responsible for issuing the new pounds (not to be confused with the British pound sterling) and guarding the money funds that will support those issues. Since that foundation will not deal with clients, it may remain oblivious to regulations that seek to prevent money laundering.
On the other hand, Libra was conceived as a stable coin (a stable cryptocurrency). Consequently, unlike Bitcoin, whose value usually fluctuates sharply in a very short time, the price of Libra will be tied to a basket of hard currencies (dollar, euro, and yen, among others), in addition to short-term debt from well-qualified states.
The promise of stability points to a price that should experience very small variations when it does not remain fixed. Therefore, it can become a more effective reserve of value than the dollar itself, since its holding implies diversifying the risk in several currencies instead of concentrating on one and its volatility.
But we are going to the most important issue of all: how this move will benefit ordinary citizens. As is currently the case with those who became familiar with the crypto world, Libra will allow people to use digital money and be their custodians through digital wallets, resulting in enormous benefits.
For example, if there were a new corralito in Argentina or any other confiscatory measure of the government in office, Libra would become an excellent option to keep the savings safe. At the same time, it will be an excellent option to prevent our savings from being liquefied by inflation, thus becoming a better alternative even to the dangerous habit of keeping money “under the mattress”.
Finally, the rising costs of using bank products may be “punctuated”. Safe box? Current account? Does transfer cost? Account maintenance? Now, with Libra, none of them will be right to be.
Heavy artillery: the financial system and regulation
The main risk presented by the Libra project is that regulators force them to “crawl it,” pressured by the lobby of the traditional financial system. However, it will not be so easy for bankers to find valid arguments to do so.
On the other hand, you can not ignore the influence of Facebook and other technology in the opinion of politicians. It is also true that the social network has designed very well the engineering necessary to exempt from certain regulations the companies that will serve as access ramps for the purchase of Libras.
That said, recently the US Congress He cited the Facebook authorities to start talking about the regulatory issue next month, so we will soon have news.
Is Libra Bitcoin competition?
Not. They are two different things. As we said before, Libra was conceived as a stable currency backed by a hard currency basket, while the nature of Bitcoin is speculative. Believing that Libra and Bitcoin are competition is like believing that the dollar competes with gold.
Moreover, Bitcoin can benefit greatly from the appearance of Libra, as marked by David Marcus, director of Libra and Vp of Managing Products on Facebook, who in turn is a Bitcoin fan since his time as a manager at Coinbase, one of the largest crypto active exchanges in the world.
Libra can take about 2 billion Facebook users to familiarize themselves with the world of blockchain technology, wallets, and crypto assets, and then ask why not acquire and use bitcoins.
For an economist specializing in financial matters such as who subscribes, it is an exceptional time to live from within the financial technology revolution that began in 2009 with the emergence of Bitcoin, after the mortgage crisis in the United States that spread throughout the planet. We are at a point of historical inflection and Libra can be that catalyst that generates a change of dimensions impossible to imagine just 10 years ago.
Just as religion and states ended up separating, something similar can happen with money. Technology invites you to participate. Do not stay out.