Although Congress ramped up its pressure on the Securities and Exchange Commission with the recent announcement of Facebook’s new cryptocurrency, it appears clear regulations are still far down the line. The SEC’s responses at a recent panel suggest that Facebook’s planned launch of Libra in mid-2020 will not lead to an immediate release of regulations specifically designed to address cryptocurrencies.
In June, Facebook announced that it would be getting into the cryptocurrency market with Libra, a digital currency supposedly targeted at the 1.7 billion unbanked population across the world. The Geneva-based Libra Association will govern the Libra Blockchain on which the cryptocurrency is being built, while the Libra Reserve will hold a host of low volatility assets to give the digital coin an intrinsic value. These low value assets will include bank deposits and short-term government securities from only stable and reputable banks. Early backers of the cryptocurrency include Mastercard, PayPal, Visa, Lyft, Uber, and Spotify.
Cryptocurrency may continue to have its fair share of doubters, but the entry of Facebook into the market should raise the interest of all government regulators, including the SEC. Some of the biggest hurdles early cryptocurrencies faced were:
1. Creating a currency that is reliable without being tied to anything of intrinsic value
2. Generating acceptance in commercial markets
While cryptocurrencies have garnered significant value in the trading market, many have yet to gain significant traction in commercial markets.
Facebook’s Libra looks to solve both problems. First, it has created the equivalent of a central bank that ties the value of its digital coins to traditional currencies. Using its extensive brand recognition, it has also gained support from established and diverse companies like Visa and Spotify. Libra may stray far from the traditional philosophy behind cryptocurrencies, but there is no question the social media giant took its time to develop the technology in such a way that it is likely to have immediate staying power. The SEC’s response to questions from Congress is that its doors are open to discuss any new entrants into the cryptocurrency market is, therefore, a vague response to what will likely be a major change in this area. To date, the SEC has primarily focused on enforcement actions designed to thwart clearly fraudulent initial coin offerings. However, that leaves a great deal of open questions regarding legitimate cryptocurrencies and how, or if, they will be regulated. While some in Congress are concerned about overregulating tech companies out of the U.S., all seem to agree that some guidance is necessary to avoid crypto brain drain to countries with clearer regulations. To date, it appears federal agencies are primarily seeking information regarding this new technology without realizing that it is already here. No doubt, Facebook’s new Libra will bring both impressive technology and a whole host of unexpected legal issues. However, it will likely be the courts that will address these problems as they arise in the absence of any immediately forthcoming regulations