Why? Because central banks in developing countries are notorious for their lack of discipline in maintaining the value of their fiat currencies, which too often lose purchasing power. The best example among many is Venezuela, which is experiencing hyperinflation worse than that of Germany after World War I. By providing citizens of developing nations with access to a store-of-value that is more reliable than their government-backed currencies, Facebook’s cryptocurrency will indirectly exert fiscal and monetary discipline on developing nations—which will improve the lives of many people globally.
2. Facebook will pay interest to holders of its cryptocurrency, and this will eventually lead to populist calls to repeal corporate subsidies to banks at the heart of the US banking system.
Why? Because the assets backing the cryptocurrency will generate interest income (especially if, according to some reports, that basket includes “low-risk securities”). If Facebook doesn’t share these interest spoils with users, a chorus of critics will loudly publicize how much money Facebook and its partners are pocketing.
3. Facebook’s foundation will grow to garner big power in global capital markets.
Facebook plans to cede governance control of its project to an independent foundation, which it recently formed in Switzerland. This is a positive—not only does it give Facebook defense against antitrust allegations, but it also helps reduce the degree of its cryptocurrency’s centralization. This foundation is likely to become a huge power within global capital markets relatively quickly—because it will do what central banks do, which is to define the basket weights for the fiat currencies to which the stablecoin is pegged and manage the assets to ensure the peg doesn’t break. There are plenty of powerful “basket-setters” in capital markets, and their power to move markets can be significant—think of the committee that defines components of the Dow Jones Industrial Average Index (DJIA) or the S&P 500 Index, or central banks that peg their currencies to baskets (such as China’s PBOC).
4. Facebook will face regulatory uncertainty—which will shed light on many outdated financial regulations in the process.
Is Facebook’s cryptocurrency a security? If it is, will users face the absurdity of needing a US brokerage account to buy a cup of coffee with it? Will Facebook catch breaks from regulators that smaller start-ups haven’t—because of the tax data honeypot Facebook’s project will generate for governments? That’s a good segue to the next prediction.
5. Facebook’s regulatory reporting program will open all kinds of interesting discussions.
We may be about to find out how many of Facebook’s 2.3 billion users are real—since users of its cryptocurrency would need to prove their identity and pass know-your-customer compliance requirements. The Information story noted Facebook “plans to provide more stringent forms of identity verification and fraud detection than do most cryptocurrencies.”
6. Facebook’s cryptocurrency will turn out, in the end, to be a Trojan horse that benefits bitcoin.
Here’s my biggest prediction: Facebook’s foray into cryptocurrency will end up benefiting bitcoin. It will take time, but Facebook will greatly accelerate the pace of teaching people about cryptocurrencies. And when this happens, more people will turn to bitcoin for one simple reason—bitcoin is scarce, while Facebook’s cryptocurrency is not. People will migrate over time to the most honest ledger for storing their hard-earned wealth—and that’s not fiat currencies or derivatives thereof, including Facebook’s cryptocurrency.
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