Cryptocurrencies Slide as Facebook Faces Regulatory Scrutiny Over Libra
Tuesday saw all cryptocurrencies sliding across the board as Facebook representatives appeared before Congress to discuss their plans for their new digital currency dubbed Libra.
Thus, the total cryptocurrency market cap dropped from $292.38 billion on Monday to $280.23 billion by mid-morning during the U.S. trading session.
Bitcoin experienced a loss of 1.4% and was trading at $10,409.2, Ethereum fell by 5.8% to trade at $217.4, Litecoin lost 5% to trade at $86.852, while XRP dropped by 4% to trade at $0.30629.
Facebook Called to Appear Before Congress
On Tuesday, David Marcus who is the head of Calibra, which is Facebook’s cryptocurrency division, testified before the Senate Banking Committee and on Wednesday, he is set to appear before the House Financial Services Committees.
According to Chief Economist Mohamed El-Erian of Allianz, it shouldn’t come as a surprise that Facebook was called to testify before Congress. He explained that it was only a matter of time until cryptocurrency initiatives attracted more scrutiny and regulatory responses due to money laundering risks.
He further stated that advocates would have to show politicians that these crypto “initiatives”, instead of being currencies, “can be a well-monitored part of the payments ecosystem.”
On Monday, Steve Mnuchin, the Secretary of the U.S. Treasury, stated that Facebook would come under far more rigorous regulatory scrutiny if it did start offering financial services. Mnuchin stated that Facebook would have to apply the same principles and safeguards traditional financial organizations employ to combat money laundering and the financing of terrorism.
Last week, President Donald Trump also made his position known via a tweet in which he laid into cryptocurrencies as a whole. He made it clear that if any tech company like Facebook wanted to “become a bank, they must seek a new banking charter and become subject to all banking regulations.”
David Marcus told Congress that the company won’t be launching Libra until it was in full compliance with all regulations. However, he also stated that Libra will be regulated by the government of Switzerland since that’s where its headquarters are.
Marcus further explained that they have already been in talks with FINMA and will continue to work with them to ensure an “appropriate regulatory framework.” The Libra Association will also be registering as a financial services organization with the U.S Treasury Department’s Financial Crimes Enforcement Network.
Will Congress Understand?
The major problem is whether Congress will be able to understand what Facebook is trying to do. After all, senators proved last year when CEO Mark Zuckerberg was testifying that they didn’t even understand Facebook’s business model. Thus, it wouldn’t be out of the realm of possibility for Congress not to even vaguely understand Libra.
A core concern is that Facebook will try to replace the U.S. dollar with Libra, or that they’ll try to get involved in monetary policy.
Marcus explained repeatedly that they had absolutely no intention of competing against any sovereign currency or getting involved in anything to do with financial policy.
However, Marcus did point out that the current regulatory system is hindering progress unnecessarily in the financial system. He explained that multiple banks have tried to fix the slow and expensive payment system, with some financial organizations attempting to employ blockchain to create alternatives, but the regulations in place are making it almost impossible to achieve anything.
While all this may help settle certain matters, it won’t do a lot to calm lawmakers who are wondering whether Facebook can be trusted after how many promises they’ve broken and all the other scandals they’ve caused. Congress might worry that the damage Facebook has done in the social media world could translate to the financial world and, therefore, be less than impressed with Marcus’ answers.