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article imageOp-Ed: Facebook cryptocurrency Libra — Hopes and doubts abound, but...?

By Paul Wallis     Aug 17, 2019 in Business
Sydney - Facebook has basically laid down the gauntlet to conventional finance with its cryptocurrency Libra. Big credit cards and PayPal have got onboard. The obvious fear in the financial sector is creating issues already.
Bringing a new, well-backed cryptocurrency into the global market is a gigantic step. The problem is that nobody’s too sure where that step is going. This is definitely NOT Bitcoin v.2.whatever – It’s a planned, large-scale, macro market cryptocurrency, not an academic exercise.
The idea of Libra is a very different ball game from a limited-issue, tech-heavy/too damn cutesy thing like Bitcoin. Facebook has currently signed up 100 major league partners, including VISA, Mastercard, PayPal, Uber, Coinbase, Vodaphone, eBay, and others. The theory is that Facebook will give itself 1 vote out of the 100, itself a very crypto-like idea, and one which will add transparency. Dare anyone say that it also adds some actual democracy, rather unusual for any type of currency.
Facebook is on face value (excuse the expression) making a good move for itself, too. Creating a currency for its billions of users isn’t a bad idea in core business terms. Unlike the other cryptos, this currency will have a built-in market with definite commercial value. The online trading value is obvious.
Libra is likely to work on a straight currency-to-crypto unit basis. X dollars = X Libras. The value is likely to move up and down with both Libra and currencies, a somewhat more complex value system, but no different to exchange rates. If you hold multiple currencies and Libras, you could well benefit from the market values. (Nobody has ever said exchange trading was a bad idea, by the way. Why is Libra different?)
The doubts
The doubts are many, based largely on Facebook’s many fronts of controversy, rather than the purely crypto issues:
• Facebook’s privacy issues
• The vast size of Facebook’s demographically very hard to define, all-over-the-place user base.
• Possible security issues
• Regulatory issues with Facebook around the world
• Corporate partner issues
The unstated doubt is more existential. Facebook was THE big pioneer in social media. It has a track record of bumping into problems which nobody has ever encountered before, simply because it’s Facebook.
Then there’s the financial markets’ rather odd relationship with Facebook. When it was listed on the stock exchange, it was a huge clash of cultures. Investors wanted in, but they’d never invested in anything like Facebook before. They weren’t buying stock in Walmart, they knew, but they expected Facebook to behave like a regular stock.
It didn’t, and it still doesn’t, because it’s in a totally different market. It’s taken the financial markets an awfully long time to adjust. This new departure is again outside market experience, and there will definitely be a learning curve.
Crypto Culture
In theory, Libra opens up a whole new and potentially profitable horizon for Facebook. What a mega-cryptocurrency may or may not do, however, is unknown. Libra is clearly on a much higher plane than the other cryptos, which are basically small beer in so many ways. They don’t have anything like global reach, and they don’t have huge backers like Libra. One of the more likely reasons for Coinbase, the biggest of crypto companies, getting involved is that this is THEIR core business, and they don’t want to miss any opportunities.
Cryptocurrency acts as a “Cloud” currency, overarching the financial mainstream. It’s go-anywhere money, and can be used throughout participating market spaces. There’s nothing at all wrong with that idea, in fact it could be seen as a natural evolution of currency in a digital world.
The crypto culture, however, suffers severely from itself. Bitcoin’s identification as a criminal-preferred currency, and its violent moves have reassured nobody. Other cryptos have become junk bonds, with limited scope and very little appeal except for those experts who know how to get real money out of them. This rather tacky image is no great incentive, nor has it done much for the reach and credibility of cryptocurrencies as a whole.
Libra is looking like it’s being set up to be very different, on a much more formal basis. That makes sense in cultural terms, because it does draw a line between Libra and everything nobody trusts about the current crypto market. The presence of big global players is a default position which includes the all-important “This is real” component for potential Libra users. Libra, in fact, will have to depend on such high levels of credibility to work at all.
What about mainstream currencies, central banking, etc.?
The planned digital currency Libra is to be managed by a Swiss-based association that includes Faceb...
The planned digital currency Libra is to be managed by a Swiss-based association that includes Facebook and its partners
Handout, Libra Press/AFP/File
The global financial markets’ insistence on probity and propriety by others is a pretty cynical exercise at best. The financial markets are currently famous for generating enormous amounts of dubious debt, nepotism, money laundering, and similar fun things. Central banks are famous for delivering idiot-level interest rates for billionaires, and writing themselves into corners when those rates hit bottom.
One thing Libra will definitely NOT do is change this bizarre culture into something credible, or even tolerable. The sheer irresponsibility of the financial “geniuses” extends to all areas of finance. It’s how they’re trained, and it’s what they do, like rabid rats who get paid big commissions for being rabid rats.
Libra, which will subject to far more actual scrutiny than most financial markets, is unlikely to be popular with the finance sector’s more rabid members. It’s a crypto. That means blockchain. That means actual tracking of transactions. That means reduced opportunities for manipulation, almost the exact opposite of Bitcoin.
Central banks may be quite ambivalent. There’s no law against cryptocurrencies. In fact any relevant laws apply to conventional things like fraud, etc., not to the currency itself. Cryptocurrencies are civil transactions, so financial regulations are harder to apply. After all, what, exactly, are you regulating, to start with? The right to buy and sell? Not easy. Scams can be regulated, basic trade, not really.
Other possible players
The other big players, so far not mentioned anywhere that I can find, are private equity and hedge funds. How would they use Libra? Short answer is “What are the hard number values right now, this second, and what can Libra do for us”? Libra could be popular as a broad spectrum investment tool, both in Libra itself and in other markets.
Private equity and hedge funds are poles apart in comparison to each other. Private equity is usually very competent, extremely diligent in researching investment opportunities, and tough as nails when it comes to putting in any real money. These guys don’t like losing, or the idea of losing, and they have a habit of not losing. If they get involved, Libra has passed a major credibility test, as well as being accepted into the investment market.
Hedge funds, however, are different. They can be excellent, or stunningly shoddy. The “good” hedge funds can and do deliver good returns, and they’re professional hardball players in a very wide range of markets. If those rather picky, but much-watched hedge funds pick up on Libra, it’s a good sign.
What about currency markets?
I’m sure everyone lies awake all night worrying about the currency markets. These highly edge-trading based markets are famous for nothing much but margins. Trading, in fact, is often sabotaged by weird governments, which turn their currencies into bad jokes and worse investments. Libra could cut clear through the currency markets. There are plenty of ways of losing on margins, too, and this could be a good way of avoiding that.
Say you don’t want to buy and sell in Whackoland Dictator Sadist Bucks or Currency Manipulators R Us Fun Money. You can use other assets, and if one of those assets happens to be a global digital currency…? The truth is that the currency markets can be risky, and a globally supported currency is likely to be much safer than fiat (government-issued) currencies.
Gold? Gold, you say?
One of the more interesting, and truly hyperbolic, possibilities of Libra is that it could also buy gold. The world goes from the old gold standard to the current markets, to a global currency setting itself up as a gold standard by default? Hilarious, but also very interesting in terms possible upsides in the gold market. Might make gold a bit more accessible, in fact, not a bad outcome for holdings and producers.
Let’s face it – The global financial markets and investments markets could do better with a credible do-everything currency which doesn’t have these ancient train wrecks attached to it. Financial “science” is now a sort of skank science, with much worthless mythology and multiple global debt disasters tacked on. This hideous, deranged mega market needs a very hard kick in the butt.
Any sort of global currency which can be properly scrutinized and vigorously backed up by hardnoses in the credit markets will have some sort of big impact. If Facebook and its partners can deliver some working sanity, it could be a very good idea.
Let’s see how it hits the markets. If it can deliver a good working option for consumers, investors and, well, humanity, it’s a very useful idea, too.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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