Donald Trump’s recent tweet about bitcoin and that Facebook’s new quasi-crypto the “libra” would get the full force of the US regulators if they “want to become a bank” has put the crypto kitty amongst the pigeons.
Why now? Surely Trump doesn’t care about bitcoin? Well, it was timed just before Facebook had to testify in front of Washington lawmakers.
Bitcoin has no aspirations about becoming a bank, because it’s not a corporation – it’s an open source software network, and as such it’s impossible for the US to shut down. The most that regulators can do is clamp down on US cryptocurrency exchanges which offer investors a way to sell bitcoin for fiat currency. But this will not solve the problem, as decentralised exchanges will fill the gap.
The tweeting rants get interesting with libra however. Trump’s tweet overshadowed Facebook executive David Marcus’ session in front of the US Congress last week to talk about the proposed digital currency.
Libra has big issues. Even though its a foundation and Facebook is hands-off, it’s still a Facebook initiative and a US centric project (with British technology from a London startup that we were previously advising called Chainspace).
However, the sheer scale of the libra and its backers has rocked governments around the world. Even in the UK, bluechip Vodafone is set to run a giant till on the libra network checking transactions and earning many multiples of the $10m a year it will pay for the privilege. In Washington, it’s going to be a head on battle of the establishment (the dollar) versus technology (crypto).
So will Trump’s banking tweet prove to be right? Well this is where the lawyers will duke it out next week. Is libra a bank? Is it an exchange traded fund? No one knows right now. “There are several uncertainties surrounding Libra’s development that make it difficult to determine its status as a bank or nonbank under Dodd Frank,” says an article in the Wall Street Journal.
Will Trump ban bitcoin like President Roosevelt banned the “hoarding of gold” with an executive order, under the authority of the Trading with the Enemy Act in 1933? Possibly. But you can be sure that Facebook have employed an army of lobbyists in Washington to push the angle that it would be better to have a successful US-based crypto than one owned by China.
Either way, the media frenzy over libra is part of the reason that bitcoin’s price has recently spiked and then subsequently retraced dramatically. But don’t be fooled into thinking that Libra’s birth is the end of bitcoin. The cryptocurrency has a history of spiking and then crashing in price with 30 or 40 per cent retracements as the norm.
This is what we are seeing now. The current bounce and nerve jangling retracement of bitcoin is just a micro trend in a longer macro movement upwards.
Price predictions are nothing more than that, but the cryptocurrency’s supply is getting lower, and demand is rising. This increased scarcity combined with bitcoin’s unquestionable status as “digital gold” suggest that the price could eventually hit six figures per coin, if not higher.
Libra is just another way for people to get into bitcoin and the digital asset class. Central bankers and lawmakers are right to be worried that bitcoin may become a default global reserve currency as time goes on. But digital currency could become the harbour in any national crisis, providing investors with a safe haven. After all, it is the 2008 banking crisis and resultant sovereign debt which helped give birth to bitcoin in the first place.
So thank you, Mark Zuckerberg. We look forward to the forthcoming grilling of Facebook executives in the US. It will make for compulsive viewing, and spark further debate around cryptocurrencies.