After Facebook announced it’s plans to launch a new currency “Libra”, the discussion initially was largely about Facebook itself with cryptocurrencies and blockchain being a distant second.
And yet, most popular cryptocurrencies have been losing value as if the U.S. Senators have somehow been grilling them and not Facebook’s David Marcus, who’s about to spend some more unpleasant time at Congress today.
Bitcoin dived sharply below $10,000 on Tuesday, reaching a low of $9,214 on cryptocurrency exchange Binance. Other coins followed suit: Ethereum, XRP, Bitcoin Cash and Litecoin have all dived to monthly lows, bringing the total market cap of all cryptocurrencies to less than $250 billion.
The prices later stabilized somewhat on Wednesday, with Bitcoin trading at $9,593 at press time according to CoinMarketCap. But overall, the sentiment in the cryptocurrency world has quickly turned from bullish to bearish — or, at best, very cautiously optimistic.
In a way, the pullback was expected, since Bitcoin rose from about $3,400 in February to just under $14,000 in June without a stronger correction. Since then, it’s been a rollercoaster, with price sharply rising and falling, often without a clear trigger.
This most recent pullback, which has been the sharpest and deepest this year, does correlate with a couple of important events. A few days ago, President Trump slammed Facebook’s Libra, Bitcoin, and cryptocurrencies in general — and as vague as his “I’m not a fan of Bitcoin” comment may be, it does carry some weight.
Another potential trigger for the crypto price carnage could be the Libra hearing. While the Senators grilling Marcus were largely hostile towards Facebook (and its myriad privacy mishaps) and not cryptocurrencies in general, the overall sentiment on the first day of the hearing was that of distrust and disdain.
My expectation is that these hearings will not lead to anything conclusive, and Facebook will be able to receive the necessary go ahead. But the sharks will have tasted blood, and there will be increased scrutiny across the board.
And politicians from other countries are echoing the sentiment; On Wednesday, German Finance Minister Olaf Scholz said a private company should not issue currency. “The euro is and remains the only legal means of payment in the euro area,” he said.
True: Bitcoin, which has been around for a decade, technically has little to do with Libra; any obstacles Facebook may face in its Libra project do not necessarily apply to other cryptocurrencies. But Libra has widely been regarded as a potential boost for the crypto space, and if it gets stifled before it even launches, there goes the dream of Facebook’s billions of users learning about crypto the easy way.
Regardless of how Facebook’s Libra project turns out, the good news is that there seems to be a pervasive opinion amongst politicians and bankers that the world switching to these new forms of money is a question of when, not if.
Intentionally timed or not, an interesting and level-headed analysis of the space comes from a somewhat unlikely place: The International Monetary Fund. In a paper titled “The Rise of Digital Money,” published Monday, IMF’s Tobias Adrian and Tommaso Mancini-Griffoli argue that digital money adoption may be “extremely rapid,” and envision several possible scenarios for the future of banking, with digital money playing an important part in all of them.
In the spring of 2017, after several months of sideways trading, the price of Bitcoin started rising — from about $1,000 in early April to $2,500 in mid-May. By August it was at $4,000. The trading was choppy and declines were sudden and severe, but the price always recovered, reaching new highs in a matter of weeks.