Facebook has roared higher over the last few sessions, largely, in our view, on optimism surrounding its support of a new digital currency called Libra. Libra is not a cryptocurrency like Bitcoin. As we understand, it is referred to as stablecoin – meant to be used for smaller everyday transactions and expected to offer less volatility. We believe Libra is not intended to be investable as a “store of value” but rather to be utilized as a “means of exchange”. Libra, in our opinion, represents Facebook’s latest effort to extend its social dominance to other digital businesses as Tencent has done so successfully in China.
To be honest though, relative to Tencent, in our opinion, Facebook is way behind in this regard and has not capitalized on its monopolistic market position (almost everywhere but China) to become the portal through which users access the digital world the way Tencent has in China. Even in the US, Facebook appears to beyears behind in the fight in payments. As we see it, there are many formidable competitors including Venmo/PayPal, Square, banks and other digital currencies that appear to have institutional support. What is potentially interesting to us is Facebook’s massive user base and the early adoption by legitimate potential partners who have agreed to be part of the effort including Mastercard, Visa and Paypal. However, as we understand, currently, any legitimate company can join and can leave the “partnership” at any time without consequences. At a minimum, we would think many of these partners want an early look under the hood as things progress.
To be fair, we know very little about the specifics. Through our analysis, Libra is not even expected to be up and running until “as soon as next year” and we do not even know how Facebook would monetize its efforts. Is Facebook channeling Tesla – offering a carrot far off in the future that could potentially have a huge total addressable market (TAM) to distract from current challenges and difficulties? Not to be cynical, but we believe that could be part of strategy here.
Further, given its recent transgressions, we believe Facebook has a target on its back with respect to further regulatory oversight. We think this early announcement might indeed backfire – after all, Facebook has suggested that Libra might eventually compete with the US Dollar as the currency of choice – and may be just the catalyst needed to generate real government action. In the end, we believe the success of currencies are about trust and confidence, and we would argue that for Facebook these commodities are currently in short supply. As a result, even if this effort is successful in the end, we would expect some regulatory pushback and broad adoption to take a while to ramp up.
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