Is Libra a Winning Move For Facebook’s Stock?

Much attention has been given to how Facebook’s Libra project will affect the cryptocurrency world, but what is even more important from an investor’s point-of-view is how it will affect Facebook’s stock price. Does this represent a long-term blunder if they fail? Will this elevate Facebook to a trillion dollar market capitalization?

The answer is complicated, and a lot of it depends upon adoption and how regulation is applied to it. Last year’s Cambridge Analytica scandal has removed a lot of the world’s trust in Facebook, and now it feels unlikely too many people would trust them with their banking as well.

In the beginning, use of Libra project would be peer-to-peer on the application. Then, it would build up to allow purchases to be made. The final form of the platform is a full banking solution that is cheaper but still keeps partners like Paypal, Visa, and others in the loop.

Libra’s design will have much greater efficiency than Bitcoin, because of the way validation works. However, this will also require complete trust of Facebook. With Bitcoin, you can validate the transactions yourself by verifying against the blockchain, and this simply isn’t possible with Libra. Therein lies a key difference that would likely prevent many users from joining the network.

Regulation and the Current Political Climate

Another aspect that must be factored in is the current political climate. There are several antitrust investigations underway and the U.S. government (as well as the EU) are lacking trust in the tech giants. Their control of media is already worrying, as they now have the ability to determine the fate of elections, so why would the government allow them to get a hold over the financial system as well?

Having a corporation as powerful as Google, Facebook, or Amazon is unprecedented, so we’re not really clear how the next few years will go. With Facebook at the forefront of an ideological battle against populism and the way the government currently rules, it seems like a risky time for the company.

What it All Means

After having stolen numerous new product features from Snapchat, it really does feel like Facebook is now moving on to steal parts of WeChat. More coins will come afterward, but Libra is the first token to come from the more established part of the business world.

Governments are afraid of the idea that their fiat currencies could be outmoded, because control of these currencies allows for manipulation of the overall economy. From my perspective, Facebook has burned too brightly and overstepped too many boundaries to be allowed control of this rogue financial system. They may not have control of the actual coin, but by designing the protocol and making it native to Facebook, they will have such a strong competitive moat, that they would effectively be able to beat the USD at its own game.

For this reason, it is easy to picture how Facebook could lose shareholder value over the next two years based on heavy push back and new regulations from the government.

So while there is no doubt that Facebook is about to change the crypto sector forever, it is difficult to make a long-term bet on the fate of this project. However, it is easy to see how the U.S. government would be threatened by this direct play to replace the current monetary system. It feels like Facebook has stuck their neck out too far and the reaction will be to regulate them much more strongly. `

Featured image courtesy of Shutterstock. Chart via Yahoo Finance.