Does Bitcoin Need Libra?

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What does Libra skepticism tell you about Bitcoin?

Overview

Facebook’s dream of being a cryptocurrency giant seems becoming more unrealizable by the day, as the increasing regulatory uncertainty is seemingly jeopardizing the company’s Libra project. While it seems that Libra has been surrounded by everything but good news even before it’s born, crypto watchers should ask themselves, does Bitcoin need Libra to thrive at all? A crypto world without Libra, is that a good thing or not? What will a no-Libra crypto world be like and how will it impact Bitcoin?

Scrutiny

Despite its innovative approach and its ambition as a global currency, Facebook’s Libra seems to remain unwelcome in the world of traditional finance, especially from a regulatory perspective. Just recently, a report from the G7 warned that a global cryptocurrency like Libra could pose a risk to the global financial system. The report highlighted the AML concerns, saying that “Libra could give rise to several serious risks related to public policy priorities including, in particular, anti-money laundering and countering the financing of terrorism, as well as consumer and data protection, cyber resilience, fair competition, and tax compliance.”

US Treasury Secretary Steven Mnuchin said the G7 finance ministers and central bankers all had “very strong concerns about Libra and stable coins in general”, although they believed in financial innovation and the need for cheaper international payment processing.

The US, the UK, and France have also raised similar concerns. Ahead of Mark Zuckerberg testimony at the House Financial Services Committee on October 23, US Senator Brian Schatz (D-HI) and Sherrod Brown (D-OH) sent three separate letters to the CEOs of Visa, Mastercard and Stripe, which were among key partners of the Libra project, saying Facebook has failed to address regulatory concerns over terrorism, money laundering, monetary policy, and economic destabilization. The senators also added that “it is chilling to think what could happen if Facebook combines encrypted messaging with embedded anonymous global payments via Libra.”

Despite the fact that Visa, Mastercard, PayPal, eBay, Stripe, and Mercado Pago announced their withdrawal from the Libra project in mid-October, the Libra Association finalized the participation of its active board members at a recent meeting in Geneva, Switzerland.

Reverse Thinking

Creating a simple yet global cryptocurrency accessible to millions for everyday use and run on a secured network backed by blockchain technology sounds as perfect as it gets, and with the support of a leading social media company and its global partners, Libra seems destined to be a success. However, perhaps it’s all these features that make Libra a tangible threat to the US dollar as a global reserve currency.

If we look at the whole Libra story from a wider perspective, all the skepticism is actual proof that the original idea of decentralized finance works and it could change the world of finance forever.

According to the original Bitcoin white paper, Satoshi Nakamoto envisioned that “a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” Isn’t that just what Libra is trying to achieve? Although this would eventually fall into the debate of centralized versus decentralized, broadly speaking, the original concept of Bitcoin, or Libra, in this case, could disrupt conventional finance if fully evolved.

Bitcoin Needs Libra? 

Now it’s more than a decade since the debut of the original Bitcoin white paper and the cryptocurrency market is still young but relatively stable and mature compared to 10 years ago. If we all believe that Bitcoin is at the right market position, fulfilling the leading role in the cryptocurrency market, where will Bitcoin go – with or without Libra?

Bitcoin has been acting as a “benchmark” of the cryptocurrency markets, and undoubtedly the most widely quoted crypto in the financial world. If Libra is lucky enough to be greenlighted by global regulators and become what it intends to be, it could cause Bitcoin prices to surge drastically as a knee-jerk reaction; however, in a macro and long term perspective, we believe Bitcoin doesn’t need Libra to thrive.

Part of Bitcoin’s purpose is as a store of value, and we’ve been seeing Bitcoin functioning more in that way, as the digital gold narrative has been heavily discussed in times of market turbulence. We believe that in a crypto market where Bitcoin and Libra coexist, they will possibly serve different purposes, where Bitcoin is more of a store of value, while Libra becomes more of payment backed by a social network that has 2.7 billion users.

Still, with the substantial regulatory challenges, it’s possible that Libra could die before it’s born, or Facebook and its Libra partners will endure serious legal and regulatory challenges in the coming years prior to Libra’s market release. We believe this prolonged process could help lawmakers, regulators and financial markets to have a deeper understanding of Bitcoin and cryptocurrency and could push Bitcoin closer to the general public. In this case, Libra could “die a hero”, though it’s still too early to make that call.

Conclusion

As a crypto benchmark, Bitcoin doesn’t need Libra to drive the prices of Bitcoin, although it could have some short-term influences on Bitcoin prices, once and assuming Libra gets all the regulatory approvals. From a long-term perspective, Bitcoin and Libra could serve different purposes and coexist in the crypto markets. Regardless of the outcome of the Libra saga, Bitcoin could benefit from Facebook’s efforts in clearing legal and regulatory barriers, pushing crypto-assets one step closer to general markets.

This post originally appeared on OKEx Blog. Read more.

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