The price of bitcoin fell by more than 10% after the chair of the Federal Reserve told Congress that Facebook’s planned cryptocurrency raises “many serious concerns.”
Bitcoin, the world’s top cryptocurrency by market capitalization has surged this year, in part because of Facebook’s announcement of its own proposed virtual currency, Libra. Experts say Facebook’s momentous entrance could accelerate the adoption of alternative currency and payment systems, lifting the prospects of other cryptocurrencies in the process.
Despite the sudden rise in investor optimism, not everyone was thrilled with Facebook’s intentions. When Libra was announced last month, the plans drew immediate scrutiny from regulators in the United States and abroad. The chairwoman of the House Financial Services Committee, Rep. Maxine Waters, D-Calif., called on Facebook to halt development of its cryptocurrency project until various policy concerns could be addressed.
On Wednesday, Powell confirmed that the Fed has reservations of its own. “While the project’s sponsors hold out the possibility of public benefits, including improved financial access for consumers, Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability,” he said. “These are concerns that should be thoroughly and publicly addressed before proceeding.
Hours later, President Donald Trump also sharply criticized Facebook’s plans to enter the cryptocurrency market, tweeting that the United States has “one real currency” and suggesting the social-networking giant may need to submit to heightened banking regulation.
Bitcoin fell to $11,658 as of Thursday morning, according to market data from Coindesk.
“We are very much aligned with Chairman Powell on the need for governments, regulators, central banks, non-profits and others to be able to ask questions, share concerns and provide feedback on this project,” said Facebook spokesman Andy Stone. “This is why we, along with the 27 other Founding Members of the Libra Association, made this announcement so far in advance, so that we could engage in such constructive conversations.”
Powell said that the Federal Reserve has set up a working group to assess the risks that Libra may pose to the financial system. He added that the Fed is coordinating with other U.S. regulatory agencies and central banks around the world to study the potential effects. “The process of addressing these concerns, we think, should be a patient, careful one and not a sprint to implementation,” he said.
Facebook has described its cryptocurrency project as an empowering tool for people who lack access to financial services, especially in the developing world. The company plans to make the currency available to its 2.4 billion global users, with a digital wallet accessible through Messenger and WhatsApp, in addition to a stand-alone app.
“With Libra, anyone with a $40 smartphone and connectivity will have the ability to securely safeguard their assets, access the world economy, transact at a much lower cost, and over time access a whole range of financial services,” David Marcus, the head of Facebook’s cryptocurrency initiative, said in a blog post this month.
Marcus said that Facebook announced plans for Libra well ahead of its release to encourage an “open discussion.”
But Powell’s remarks highlight the potential roadblocks ahead. Washington’s fresh concerns over Facebook’s push into financial services comes as lawmakers and consumer watchdogs are ratcheting up their criticism of Silicon Valley. Democrats and Republicans have expressed heightened concerns over a range of issues that intersect with Facebook’s business, from the spread of misinformation online, to consumer privacy and market concentration.
Last month, President Donald Trump continued his attack against big tech companies, suggesting that the federal government should take Google and Facebook to court, potentially on antitrust grounds. Several Democratic candidates vying for the White House have also seized on the backlash against major tech platforms, focusing on concerns of monopoly and labor relations. Presidential hopeful Sen. Elizabeth Warren, D-Mass., has called for the breakup of Facebook and other tech companies that she says have grown too powerful.
How Washington’s souring mood will apply to Facebook’s cryptocurrency ambitions may reveal itself soon. Two congressional committees – one in the House and one in the Senate – plan to hold hearings next week to examine Facebook’s Libra.
(c) 2019, The Washington Post · Hamza Shaban