QUESTION: Why is Facebook going to issue a cryptocurrency? Doesn’t that confirm the evolutionary path of technology?
ANSWER: The term “cryptocurrency” is being thrown around very loosely. It is true that there is increasing hype and speculation regarding a theoretical Facebook Coin. However, this is not a “cryptocurrency” it is simply a digital entry and nothing more. The proposed Facebook Coin is the polar opposite of Bitcoin. Facebook is creating a pretend cryptocurrency for WhatsApp. This is not a real cryptocurrency. The cryptocurrency enthusiasts are only looking at the label. The Facebook Coin is nothing like Bitcoin (BTC).
Thet Facebook Coin will be pegged to a fiat currency similar to that of Tether (USDT) and USD Coin (USDC) and it will use blockchain technology. The only real unique aspect about Facebook Coin versus a regular stablecoin is that it could be backed by a basket of fiat currencies, all held in Facebook bank accounts. This is more along the lines of the ultimate evolution of what I would expect to become the next reserve currency – a basket of currencies rather than a single currency.
Amazon.com Gift Card i... Buy New $25.00 (as of 07:45 EDT - Details) If our sources are correct, this means that a Facebook Coin would easily compete with the rest of the $2-3 billion stablecoin markets where the biggest stablecoin remains Tether (USDT). Tether (USDT) has had some problems with its backing which resulted in its decline by as much as 10% below the value of a U.S. dollar.
That said, since Facebook Coin would be a stablecoin, it will not be possible to invest in it so it would not be a trading vehicle like Bitcoin. That means it would be more of a store of value which is quite different from Bitcoin (BTC) and most other cryptocurrencies where fluctuating prices really prevent them from becoming a true currency digital or otherwise. Clearly, Facebook has no intention of launching a trading cryptocurrency. If they did, it would probably blow Bitcoin out of the water. Facebook is not going this route for it is looking to get into really the digital currency world, not cryptocurrency. However, Facebook’s total stock has a market cap of $463 billion is closer to 4 times that of the entire crypto market cap of $130 billion.
If we pull back the curtain, Facebook is much more interested in a real-world market by creating its own payment network independent of Visa and PayPal. Effectively, venturing into a digital currency world backed by a basket of currencies or allowing clients to select their currency means they would compete for deposits like banks but globally. With Facebook’s immense user base, such as a payment network would be extremely competitive in the banking world. Obviously, Facebook sees that a digital payment network will be unique out of all the other big name fiat payment networks since it will use blockchain technology and its client base to launch it into the future.
Reprinted with permission from Armstrong Economics.