Scheduled for a public launch next year, the cryptocurrency, which also counts taxi app Uber Technologies Inc (NYSE:UBER), payments giant Visa Inc (NYSE:V) and FTSE 100 telecoms firm Vodafone PLC (LON:VOD) among its backers, has recently been under scrutiny from a number of regulators and lawmakers who have expressed concerns around its potential to upend the global financial order.
However, these developments appeared to come to a head on Monday, when a Reuters report revealed draft legislation from the US Congress that would ban any large technology firm (defined as making at least US$25bn in annual revenue) from creating or operating a digital asset, which would include cryptocurrencies like Libra.
This came hot on the heels of comments last week made by the man himself, President Donald Trump, when he said he “wasn’t a fan” of cryptocurrencies, whose value he said was based on “thin air” and facilitated illegal behaviour.
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. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity....— Donald J. Trump (@realDonaldTrump) July 12, 2019
And while traders may not like to pay much heed to Trump’s Twitter ramblings, similar (albeit more nuanced) comments from US Federal Reserve chairman Jerome Powell may have put the wind up crypto investors.
Speaking to the Financial Services Committee of the US’s House of Representatives on Wednesday, Powell said that Libra raised “serious concerns” around privacy, consumer protection and money laundering as well as more general financial stability.
Until these concerns were addressed, Powell said he did not think the project should proceed.
With pressure mounting from separate avenues of political and regulatory power in the US, it seems that Libra could be regulated into irrelevance before the public manage to their hands on it next year, and thus put greater pressure on Bitcoin and the rest of the nascent crypto sector.
This could potentially be putting pressure on the price of Bitcoin, often seen as a bellwether for the sector as a whole, as it has fallen around 13% over the last seven days.
“Old men shouting at the moon”
While the regulatory threat to Libra appears to be mounting, some in the industry see Facebook’s currency as bringing more fundamental debates around cryptocurrency to a head, as well as highlighting the threat of the technology to government-controlled monetary systems.
George McDonaugh, chief executive of crypto and blockchain investment firm KR1 PLC (LON:KR1), says that the recent governmental outbursts against Libra, Bitcoin and other cryptocurrencies are the equivalents of “old men shouting at the moon” as new technology challenges the system of government-backed currency that has existed since the abandonment of the gold standard in the 1930s.
He adds that Libra’s prominence means that the trajectory is “inevitably headed” toward a debate over the nature of money and that, bar criminal sentencing, it will become “very difficult” for liberal, democratic countries to prevent the spread of cryptocurrency use.
In the case of Facebook, McDonaugh says the argument over Libra will eventually end up at the Supreme Court, with the precedent set by Citizens United v Federal Election Commission, which ruled that money was classed as speech under the First Amendment of the Constitution, and as such a ruling would likely need to be made regarding whether Libra itself should be classed as money and thus covered under the precedent.
In fact, he says that the pending legal quagmire that Facebook could fall into over Libra made decentralised cryptos like Bitcoin look like “the best thing since sliced bread” as its decentralised nature avoids the pitfalls of a centralised authority like Facebook and the Libra Association which was set up to govern the currency.
“You can’t haul Bitcoin in front of Congress”, he says.