As Facebook prepares to launch its Libra cryptocurrency with a group of international business partners, growing political pressure and looming federal regulations threaten to derail the social media giant’s plan to establish a global financial services network before it debuts.
President Trump argued Thursday that Facebook should have to register as a bank and submit to banking regulations if it plans to move forward with Libra, which company officials have touted as a faster, cheaper platform than traditional financial services. Trump’s criticism follows bipartisan scrutiny in Congress, where committees in both houses have called on Facebook to submit to public hearings.
Efforts to regulate Libra are unlikely to result in a push for Facebook to secure a bank charter, according to experts. But as officials seek ways to protect the U.S. financial system from perceived risks associated with cryptocurrencies, Libra will likely be subject to costly regulations that could cause Facebook to rethink the initiative.
“Libra will not need a bank charter. However, and this is an important, however, Libra, and specifically, financial transactions conducted with Libra coin, will need to comply with important financial laws, notably the Bank Secrecy Act and related anti-money laundering regulations,” banking analyst Bert Ely told FOX Business. “The cost of complying with those regulations may be so great that Libra coin will not be financially viable and hence will never become a financial reality.”
Facebook has already taken steps to reassure regulators about “Libra,” which was announced amid lingering concerns over the company’s data privacy practices. The company has stressed that it will not exercise direct control over Libra. Rather, Facebook will be one of 29 companies that participates in the Libra Association, an independent Switzerland-based entity that will manage the cryptocurrency.
David Marcus, head of Facebook’s cryptocurrency segment Calibra, is set to testify before both the Senate Banking Committee and the House Financial Services Committee in the coming days. U.S. lawmakers have called on Facebook to halt all Libra proceedings until proper oversight and regulations can be implemented.
Fed Chairman Jerome Powell also expressed reservations about Libra this week, warning that the cryptocurrency “raises many serious concerns regarding privacy, money laundering, consumer protection and financial security.” The Fed is coordinating with figures at central banks in other countries to monitor the project.
Critics of cryptocurrencies, such as bitcoin, have long held that the platforms are havens for illicit activity because they are unregulated and have no ties to central financial institutions. Facebook said Libra will allow for instant transfers with money without fees, provide financial service support to unbanked individuals and a stable alternative for those living in regions with economic or political volatility.
“I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air,” Trump wrote on Twitter. “Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity.”
Trump added that Facebook “must seek a new banking charter and become subject to all banking regulations” before it launches Libra.
While there is no clear legal standard that would require Facebook to register as a bank, Trump’s assertion that the company would be subject to international banking regulations appears “largely correct,” according to Morningstar equity analyst Eric Compton.
“Trump’s tweet is also just another example of political pressure on Libra and Facebook, another hurdle which we think will be difficult to overcome,” Compton added. “We think it will be a steep, uphill climb for Libra.”
Late Friday, reports surfaced that the Federal Trade Commission voted this week to approve a $5 billion settlement with Facebook to resolve a lengthy probe into the social media giant’s data privacy practices. The potential fine would represent the largest privacy-related civil penalty the FTC has imposed and thus, the largest fine imposed on a technology company
Libra’s presence on Weibo grows; China senses competition for Alipay and WeChat
Libra, Facebook’s much-talked about cryptocurrency, has not only gotten the United States riled up, but has also breached its shores to disrupt the Chinese market. A recent analysis of Weibo, China’s alternative to Twitter, has revealed that Libra was the second most searched entity on the social media platform.
To be exact, the term ‘Libra will compete with Alipay and WeChat’ was trending on China’s social media space in the wake of the debates going on in the U.S. Congress over the week. Some cryptocurrency enthusiasts had their doubts about the search parameters with @guymp, an e-commerce researcher, tweeting,
1.) Libra is extremely unlikely to be allowed to operate in China
2.) Alipay/WeChatPay user account are *by design* almost completely nonexistent outside of China.”
Several countries have started talking about the Mark Zuckerberg-led cryptocurrency and China’s interest in the asset has only managed to pull more people into the digital asset industry. Some proponents of the space have also speculated that China is simultaneously working on their own crypto-project to rival that of Facebook and Bitcoin. Anthony Pompliano, CEO of Morgan Creek Digital Capital, had recently stated,
“China is accelerating those plans in response to Libra. They are very worried about Libra being very US-dominated or regulated by the U.S., they feel like the digital currency would give the US an advantage over China. So China is going to push forward and accelerate to build a central bank regulated digital currency.”
Libra’s worldwide reach is not just based on speculation, but rather on hard research. A recent TIE report had touched on Libra’s dominance in the Twitterverse, which included search hits in the U.S. and the United Kingdom. TIE reported that tweets about Libra accounted for 43.8 percent of all crypto-related tweets in the United States, out of which 54.8 percent were negative.
The UK however, had a different outlook towards Facebook’s cryptocurrency, with a majority of the sample space claiming that Libra would be good for the community.
WATCH: Lukka CEO Believes in a Future Full of Corporate Tokens
Jake Benson is a long-time industry entrepreneur and the CEO and Founder of Lukka, a comprehensive tool for calculating capital gains taxes for cryptocurrency. In this clip he and CoinDesk Editor Pete Rizzo talk about a future where corporate tokens aren’t a “surprise.”
“It’s not a surprise to me that inevitably corporations they’re going after creating their own tokens but for Facebook to be one of the first big ones is is pretty much a surprise,” he said.
“If this project is going to be successful I think they absolutely have to satisfy minimum requirements,” he said. “But I would also believe that the onus is on them to sort of demonstrate that there’s additional level of controls and transparency that might be benefits of cryptocurrency that maybe weren’t even possible before.”
Benson expects to see a “more compliant” future… as long as the social media giant can avoid the problem of privacy invasion associated with the platform.
You can read our complete Libra coverage here and watch our CoinDesk LIVE interviews here.
Facebook’s Libra is not a cryptocurrency, claims CoinShares’ Meltem Demirors
The largest cryptocurrency in the world, Bitcoin [BTC], saw a drastic fall in its price on July 16, as U.S. legislators sharpened their arguments against crypto and its viability. Bitcoin noted a fall of 12% in its price and was being traded at $9,591, at press time.
However, providing support to the coin was Meltem Demirors, CSO of CoinShares, who opined about the difference between Bitcoin and Libra, and how imitators of currency should be seen for facts. Demirors said,
“I urge to view Bitcoin as open pubic networks that enable innovation and growth, and to treat Libra and its future imitators, and there will be many, in the context of the facts- private efforts led by corporations holding billions of dollars of public’s money. “
In an interview with CNBC, the CSO clarified that the question is not about Libra being dangerous. The question is, what is Libra? It is trying to be a cryptocurrency, but the facts are that Libra holds assets including US dollars and government securities and is essentially, holding public’s funds.
Demirors elaborated on the same in her statement to the House of Representatives,
“We’re seeing a wave of interesting cryptocurrencies and countless imitators which borrow some features but are decidedly not cryptocurrencies. Libra is not a cryptocurrency. “
Cryptocurrencies are here to stay and this has been said time and time again. However, with skepticism playing its part, the need for Libra to be regulated has been marked as urgent. Even though Bitcoin is not regulated since it is a technology, the businesses built on top of it are.
Even though there remains a fair bit of uncertainty about the United States’ regulatory stance, for now, lawmakers are very aware that regulatory clarity is tantamount, with a number of efforts underway. The Token Taxonomy Act is one such step, and would exclude cryptocurrencies from being classified as securities.
Demirors added that it might be too early to say whether any regulations will be applied on crypto, but there could be a formation of two committees; One, that would focus on the issue of cryptocurrencies and two, a subcommittee that focuses on the issue of Libra. The CSO concluded that she was cautiously optimistic about growing clarity in crypto-regulations, with Demirors claiming that the debate created much-needed political momentum.