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Will Facebook wipe out cryptocurrencies? Bitcoin gained, for now

24 Dec 2018 13:57|Bartosz Grejner

"Facebook will implement its own cryptocurrency. It may sound strange because Facebook banned ads related to cryptocurrencies at the beginning of the year. Is it changing its stance now? Not necessarily. It will not be a typical cryptocurrency, but rather connected with the dollar so-called stablecoin," writes Bartosz Grejner, Conotoxia Analyst.

When the world share markets record new lows, the cryptocurrencies clearly take a second breath. A week ago one bitcoin cost 3.2 thousand USD, while today (24.12) it has increased to nearly 4.4 thousand USD. The increases do not include only the largest of the cryptocurrency. The whole market is appreciating. Some of the leading (in terms of capitalisation) cryptocurrencies recorded well over 100% profits (e.g. bitcoin cash).

Prices go up. There is no clear reason for this

Although this upward trend seems impressive, there is a long way from mid-November prices, which were still far from the records. Bitcoin would have to gain about 50 per cent to reach levels seen less than a month and a half ago. Is it possible? Definitely, after a period of stagnation, the cryptocurrency market returned to high volatility, a feature that has always been its main trait.

There were no direct reasons for the current growth. Some market participants might have thought that prices were running low enough to increase their involvement in the cryptocurrencies again. It was particularly important for the company and people mining cryptocurrencies. Current bitcoin prices are still below the profitability level for a significant part of smaller entities.

What is Facebook up to?

Even before the weekend, Bloomberg, citing anonymous sources, reported that Facebook is working on its own cryptocurrency. It would be used to pay for WhatsApp messenger. However, it will not be a typical cryptocurrency like bitcoin, but a so-called stablecoin, because it is to be tied to the dollar. This drastically reduces the risk of sudden changes in its value.

The problem with most stablecoins is their classification. They are perceived as financial instruments (not as currencies), which makes trading difficult. Until now, relatively small entities have been involved in their development, and projects ended in failure or very limited success.

There is a good chance that a technological giant such as Facebook will succeed in introducing its own stablecoin in the myriad of regulations that are not necessarily favourable to it. Even if this happens, payments will not be launched globally in the near future. First, they will be introduced in India. It is not a random choice. It is about not only a huge user base but also about the fact that money transfers to India are the highest of all countries in the world. In 2017 it amounted to 69 billion USD, and more than half of them came from only three countries: the United Arab Emirates, the USA and Saudi Arabia.

Good news with short-term availability

In the present situation on the market, the Facebook concept (price drops, last rebound) can be even positive information showing that technological giants are interested in the blockchain and cryptocurrency technology. In particular, at the beginning of this year, Facebook imposed a ban on advertising related to cryptocurrencies (ICO) in its network, which in turn had a negative impact on the entire market.

However, in the longer term, it does not have to be very good information, rather neutral or even with negative consequences. Demand for other cryptocurrencies will not increase due to this fact. It may even turn out that the largest technology companies will be more willing to create their own cryptocurrencies than to use existing ones. By using their huge user base, solutions that Facebook intends to introduce (first WhatsApp, then Messenger or Instagram), may even contribute to a decline in interest in smaller cryptocurrencies.

24 Dec 2018 13:57|Bartosz Grejner

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