Facebook Stuns Wall Street with Details of its New Cryptocurrency Libra But is Met With Opposition


 
 
10:41 06/23/2019

Despite Facebook FB  revealing the details of one of its biggest endeavors, the company has been meet with opposition.

It was last week that Facebook announced the details of its digital currency Libra, which will become avaialble for online users in 2020.

Just hours after Facebook unveiled Libra, Rep. Maxine Waters (D) requested that Facebook put a pause on Libra's development. Facebook had been working on Libra for the past year.

Waters, who is the chair of the House Financial Services Committee, stated, 'Given the company’s troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action.'

Her full statement reads, 'Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data. It has also exposed Americans to malicious and fake accounts from bad actors, including Russian intelligence and transnational traffickers. Facebook has also been fined large sums and remains under a Federal Trade Commission consent order for deceiving consumers and failing to keep consumer data private, and has also been sued by the government for violating fair housing laws on its advertising platform.

“With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users. The cryptocurrency market currently lacks a clear regulatory framework to provide strong protections for investors, consumers, and the economy. Regulators should see this as a wake-up call to get serious about the privacy and national security concerns, cybersecurity risks, and trading risks that are posed by cryptocurrencies. Given the company’s troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action. Facebook executives should also come before the Committee to provide testimony on these issues.'

Facebook's Libra is an open-source digital currency that people will be able to use to transfer money to peers or merchants over the internet.

Rep. Patrick McHenry wrote, “While there is great promise for this new technology in fostering financial inclusion and faster payments, particularly in the developing world, we know there are many open questions as to the scope and scale of the project and how it will conform to our global financial regulatory framework. We need to go beyond the rumors and speculations and provide a forum to assess this project and its potential unprecedented impact on the financial system.”

Senator Sherrod Brown tweeted, 'We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight.'

Several analysts have said what they think about Facebook's cryptocurrency including RBC analyst Mark Mahaney who has said, 'We believe this may prove to be one of the most important initiatives in the history of the company to unlock new engagement and revenue streams.'

“We believe this is a major initiative for Facebook, and one that has the potential of putting the company front and center in areas beyond advertising, including commerce and financial services, materially expanding its total addressable market and growth prospects,” said SunTrust analysts.

They added, “It reduces the potential for regulatory scrutiny and opposition on anti-trust grounds (especially in the current environment), given Facebook’s consortium approach and the varied nature of the partners.”

“Facebook has its eyes set on becoming the world’s leading ecommerce platform as well,” remarked MoffettNathanson, which has a 'buy' rating on the stock. The firm also added, “We believe a Facebook cryptocurrency-based payments system could be especially useful in countries with high inflation/unstable banking systems and for cross-country remittances. So, Facebook’s commerce ambitions do not appear to be limited to developed markets. Rather, Facebook has its eyes set on becoming the world’s leading ecommerce platform as well.”

Suntrust, which also has a 'buy' rating on Facebook also said, 'We believe this is a major initiative for Facebook, and one that has the potential of putting the company front and center in areas beyond advertising, including commerce and financial services, materially expanding its TAM and growth prospects. ... It positions the company as one of the key actors at the center of the crypto currency development, and a main architect of the future of this emerging and important trend. While crypto currencies have existed for several years now, no other company could bring the combination of user scale, brand support and balance sheet, which Facebook can in our opinion. ... It reduces the potential for regulatory scrutiny and opposition on anti-trust grounds (especially in the current environment), given Facebook’s consortium approach and the varied nature of the partners.'

RBC has an outperform rating on the stock and has also commented, 'We believe this may prove to be one of the most important initiatives in the history of the company to unlock new engagement and revenue streams, and we plan to provide an analysis of the White Paper to help investors analyze the underlying cryptoeconomics of the token. We believe Facebook will use crypto to facilitate a platform for: 1) Payments; 2) Commerce; and 3) Applications & Gaming. And we believe this strategy is a multi-step process, starting with a focus on user engagement through messaging and leading to further monetization with each subsequent, deeper step – a similar strategy that has worked well for Facebook’s Core Advertising business.'

Bank of American, also with a 'buy' rating stated, 'With more than 2.5 billion users, Facebook and its partners could be a significant endorsement of cryptocurrency and a notable addition to the Facebook app ecosystem.

Although many questions remain on ease of use and potential adoption as there are very viable online payment alternatives in place, the consortium will likely get significant press/visibility and could be a medium-term catalyst for eCommerce activity on Facebook. We see the launch as an important initiative for the company as it builds out a more private messaging ecosystem with eCommerce capabilities.”

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This article has been provided by a Chasing Markets contributor. All content submitted by this author represent their personal opinions, and should be considered as such for entertainment purpose only. All opinions expressed are those of the writer, and may not necessarily represent fact, opinions, or bias of Chasing Markets.
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