This week, the Bitcoin rally that started early this year continued. The rally has led the currency to gain by more than 150% this year. This makes the cryptocurrency has the best performance compared to all other asset classes.
The reason for this week’s rally was the launch of Libra, the cryptocurrency project by Facebook. This week, the company showed the roadmap of the currency, which will go live in the coming year. The cryptocurrency, which is based on the stablecoin model will be backed by fiat currencies like the USD, euro, and yen.
Bitcoin tends to react to positive industry news by potentially moving up. This is despite the fact that the impact of Libra on Bitcoin is not yet well-known. In fact, the currency can be described as being strongly anti-bitcoin. This is because Bitcoin is not backed by anything, which causes its price to be significantly volatile. It is not uncommon for the price of Bitcoin to gain or lose by more than 10% in a single day.
The launch of Libra was a validation of the blockchain industry. This is because it was the biggest project by a big company. It is also supported by 27 large companies like Visa, Mastercard, and Uber, which have all committed $10 million each on the project. Facebook aims that the product may one day rival the US dollar, which is viewed with distrust by many people because of the Federal Reserve.
The launch also met tough words from regulators. In the United States, the senate and house members sounded a caution on the currency. Internationally, other regulators are looking into it. In France, the finance minister said that the government will not allow the coin to replace other fiat currencies while the Bank of England governor said that it will be a systemic risk. Writing for the FT, Martin Sanbu said that:
Strip away the buzzwords, and you notice two facts. What Facebook has actually proposed is much simpler than it claims. It simply offers a new technology to facilitate payments. At the same time, it hints at a future destination that is much more ambitious — mentioning credit, access to capital and smart contracts.
Also, there is a question on whether the Libra coin will be a cryptocurrency at all. In fact, the FT wrote that:
The new technology Facebook and its partners are promising will just allow people to make payments denominated in units of this basket. The payment and transfer functionality itself is no different from what banks, credit card companies or PayPal do today; and the technology will not have the anonymity or decentralisation that attract some to actual cryptocurrencies such as bitcoin.
Therefore, there is a likelihood that the new hype is premature. This means that the price of Bitcoin may drop, in what is known as buy the rumor, sell the news.