Does Facebook’s Libra cryptocurrency forewarn of a soft takeover in the cryptocurrency space?
“Do not try and bend the spoon, that’s impossible. Instead, only try to realise the truth — there is no spoon.” — The Matrix
In the Matrix, Neo wakes after crashing out at his desk. Looking at his monitor, he reads the words, “Wake up Neo…,” and while pressing keys to kill the process, someone remotely accessing his computer types…
The Matrix has you.
Follow the White Rabbit.
Knock Knock, Neo.
At that moment there’s a knock on the door. After completing a deal, Neo is invited to join the party goers, and after initially refusing, the girl turns to leave, revealing a white rabbit tattoo on her shoulder blade.
It’s Neo’s call to action.
The white rabbit leads Neo to Trinity, from Trinity to Morpheus, and from Morpheus to the truth.
This week as Bitcoin explodes higher breaking $11,000, the 95%, the majority of cryptocurrency traders and investors, look at the market like most people see the world who are trapped by the Matrix.
The majority look at a chart and concentrate on the technical indicators, with very few understanding the truth, and the truth is the driving force affecting supply and demand.
Using data from BitStamp, this week Bitcoin traded just $200 shy of a 50% retracement from its all-time high.
Bitcoin has only ever traded higher between November 2017 and March 2018.
If you use a cryptocurrency screener, especially if you concentrate on the top alt-coins, it’s green all around.
Using BitStamp data, Bitcoin’s 50% retracement level is $11,400. Bitcoin hit $11,201 on the 22nd June, but the week’s two best-performing alt-coins are Solar Coin and Neo.
While their weekly performance is better than Bitcoin, their overall recovery is not. Neo’s 50% retracement level is $105, but Neo is still trading under $20. Solar Coin’s 50% level is $1.36, but it’s still trading around five cents.
And it’s not just Neo and Solar Coin. Ripple had a good week, up 14%, but if Ripple was matching Bitcoin’s recovery, it would be trading at $1.70. Instead, XRPUSD is trading around $0.50.
Normalising against Bitcoin’s recovery, Cardano should be trading at $0.71, but it’s under $0.10, Stellar should be around $0.56, but it’s $0.16, Bitcoin cash should be over $2,000, but it’s $515, and Ethereum should be $750, but instead it’s $316. Litecoin is doing better. It should be around $200, but instead, Litecoin is trading close to $146.
Yes, these coins are all going up, but it’s apparent average Joe, who, during a frenzy, drove prices into the December 2017 highs, is not yet piling back in, and, if that assumption is correct, what or who is driving Bitcoin higher?
Using data from Bitinfocharts.com, the number of Bitcoin active addresses is slightly less than in April 2019, but since this time Bitcoin’s price has doubled.
Turning to social media for clues, the number of tweets has recently spiked, but Twitter activity is still below where it was in late 2018.
Google trends, although also having spiked recently, is still below the activity seen at the end of November 2018, and back then Bitcoin was still in a downtrend trading at less than $4,000.
One of the most powerful skills behind investing in anything is your own experience.
Peter Lynch has one of the most successful fund managing track records ever, popularising the idea that making investment decisions does not have to be complicated.
Who is Peter Lynch? Lynch managed the Fidelity Magellan fund from 1977 until his retirement in 1990. During this time, Lynch grew the fund from $18 million to over $14 billion, averaging over 29% per year for investors in the fund.
Using the rule of 72, Lynch’s yearly average returns of 29% would have doubled your money over four times in thirteen years. If you had invested $10,000 on the day that Lynch started at Magellan, you would have over $280,000 on the day he retired.
Lynch’s idea is simple too, so simple the majority underestimate its effectiveness. Don’t.
Lynch believed that most people have advantages that fund managers do not, yet don’t even realise it. Lynch called this local knowledge. It’s the field you work in, the area you live, and your observations of the behavioral patterns of the people you know. It’s also your own habits and observations as you experience a product as a consumer.
Using Lynch’s technique, have your friends and family mentioned cryptocurrency? Does anyone you know own Bitcoin? At work, are people talking about Bitcoin or alt-coins? And, are you listening to conversations in coffee shops?
Use the feedback you get from your observations like a statical exit poll during an election. Compare the current price action and observations with times when everyone wanted in at any price like in November and December 2017. Did anyone in your social circle buy cryptocurrency then, and if so, what about now, are they buying again, or did they lose money and get frightened off?
Facebook is launching a cryptocurrency. Named Libra, Facebook is developing a stablecoin. News of Facebook working on its own cryptocurrency is not new, it’s been around for a while, but the release of the white paper is being used as a probable reason for Bitcoin’s $2,000 move this week.
All traded markets are discounting mechanisms, pricing in the expected, reacting to the unexpected. It’s the reason companies can announce dreadful results and yet rally in price because the results, though terrible, were better than expected.
Is the move in Bitcoin factoring in not Facebook’s cryptocurrency debut, but the potential of Facebook’s entry into the cryptocurrency space?
It’s not about Libra. It’s about legitimacy and what legitimacy infers. It could, for example, soften India’s stance on cryptocurrencies. India has a population of over 1.3 billion people, equivalent to over 17% of the world’s population. What effect would legalising cryptocurrency in India have on the market?
It’s unknown, but Facebook’s entry into cryptocurrency adds a variable that needs to be priced in, but it’s often not the news itself, but the implications of the news that has the most effect.
One skill deployed by the 5%, the most successful group of speculators and investors, is the transmutation of new information.
Facebook’s mission statement is this:
“ Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.”
In the Smart Dust and Big in Japan series of articles, podcasts, and videos, we talked about the unbanked. In 2019, billions of people have no access to basic financial services, and this is Facebook’s target market.
In the white paper, Facebook outlines their plans for a decentralised blockchain low volatility cryptocurrency and smart contract platform, stating their aim is to provide a new opportunity for responsible financial services innovation.
Another word for innovation is disruption. It’s one thing to read the shiny white paper, with benefit after benefit, but if you take apart the sentences, you might, via transmutation, discover their intended reasons for entering into the cryptocurrency space.
And one of those reasons is trust. Facebook found itself in the middle of a data scandal in March 2018, involving a British company, Cambridge Analytica, where millions of users had their data harvested via an app without their permission, resulting in Facebook being hauled up in front of Congress and a British Parliamentary committee.
Despite being labeled as “digital gangsters” by British lawmakers, Facebook was fined the maximum possible amount of £500,000 for failing to protect users information. The thing is, at the time of the scandal, Facebook made that much in advertising revenue every five and a half minutes.
In the US, Facebook is facing much harsher penalties. The Federal Trade Commission’s private inquiry has cost Facebook $3 billion so far, as evidenced by the charge made public on Facebook’s first quarter 2019 earnings report, with estimates the amount could go to $5 billion, and that’s about equal to Facebook’s quarterly net profit, according to recent financial statements.
Facebook is facing multiple investigations from other agencies around the world. In the US, the Securities and Exchange Commission, the FBI, and the Northern District of California are also investigating Facebook, targeting executives within the company, asking about what they knew about the Cambridge Analytica data breach, and more importantly when they knew it.
The US Justice Department and the Eastern District of New York have, according to CNBC, been conducting a criminal investigation of Facebook, and the Department of Housing and Urban Development is seeking damages for anyone harmed by Facebook’s advertising practices relating to housing. The European Union’s data protection watchdog has launched multiple investigations into Facebook’s privacy practices. Ireland is also investigating the usage of data from Facebook-owned What’s App and Instagram. Authorities in Belgium are also scrutinising how Facebook tracks users via cookies, pixels, and social plug-in apps, and Germany’s Federal Cartel Office is investigating Facebook’s overstepping of the GDPR rules that came into force in May 2018.
Multiple investigations into the company and its executives, the labeling of Facebook as a “digital gangster” by British lawmakers, and the prospect of record-breaking fines have made little impact on the share price, and user engagement figures.
Despite the negative headlines accusing Facebook of harvesting their user’s data, the public doesn’t seem to care, but the authorities most certainly do.
Reading the headlines and skimming through the articles, it would be easy to come to the conclusion that Facebook had directly stolen the data, but that is not the case.
In 2014, a Cambridge University laboratory assistant, Alexandr Kogan, developed a personality quiz app for Facebook.
Around 270,000 people installed the app. At the time, it was possible for any Facebook developer to gain access to the app installer’s data and also the data of their Facebook friends, but when Kogan’s app asked for this data, the app saved the information to a private database instead of immediately deleting it.
Kogan later provided the private database containing millions of Facebook users’ data to Cambridge Analytica who used it to create “psychographic” profiles, which are alleged to have influenced the British Brexit referendum and even the election of US president Donald Trump.
Facebook, who since their inception, have metamorphosised from providing simple tools to allow the sharing of information into a major news outlet, where Facebook’s machine learning engine is learning from your engagement, serving stories targeted to your history, evolving and giving you more of what you want.
Facebook is a business, using its advertising platform in ways to effectively monetise its user base engagement, but, as highlighted by the 2018 data scandal, issues like security, the psychological effects on users, and even surveillance have now been raised by the authorities.
The bottom line is this: The more accurately Facebook can predict what you want, the more time you will spend and the platform, and the more time you spend on the platform, the more money Facebook will make.
So, in an environment of less trust in Facebook by the authorities, Facebook implementing a Byzantine-fault-tolerant blockchain based system begins to make sense.
In the Problem Reaction Solution series of articles, podcasts, and videos, we discussed the process of change. Not change using force, instead, change using stealth.
Tech giants have all but used up all the low cost and easy methods of monetising their businesses. Amazon and Google are using “smart” devices to build their perfect you, and with 5G on the way, the bandwidth will be available for them to upscale their efforts.
First, find the problem. Then, engineer a reaction, and finally provide a solution.
Facebook’s new Libra platform provides a solution to a problem. The problem of the unbanked.
Facebook is developing a global currency, Libra, that will operate inside a decentralised blockchain, centrally controlled by them — not quite the libertarian ideology of early Bitcoin adopters.
With Facebook’s user engagement at over 2.3 billion, 30% of the entire global population will be exposed to the wild west of asset classes — cryptocurrencies.
Facebook’s user engagement in 2019 shows it’s still trusted by the masses, in spite of the 2018 data scandal. The development of a Byzantine tolerant system will go a long way to show the authorities that Facebook is not being laissez-faire over the current investigations hanging over the company, showing it’s being proactive, developing an infrastructure where, if used for data storage, it will be impossible to spawn datasets without Facebook’s knowledge.
At the same time, Libra will provide a solution to the billions who are, in our know your customer and anti-money laundering world, locked out of the banking system. Solving this problem, Libra will provide a boost to the number of users inside Facebook’s own ecosphere.
So, Libra the currency will run on a secure, scalable, and reliable blockchain. The stablecoin will allow billions access to an asset that will be redeemable on a one to one basis for hard currency.
Today, even the value of US dollars is based entirely on trust, since the US dollar was taken off of the gold-backed Breton Woods system in 1971. Facebook will back Libra with a reserve of assets in the form of bank deposits and government securities, designed to give the Libra currency intrinsic value.
Facebook’s Libra cryptocurrency has three parts. The first is the currency running on a secure, scalable, and fault-tolerant blockchain, and the second is the asset backing of the Libra currency in the form of bank deposits and government bonds.
It’s the third part that goes against the original ideology of early cryptocurrency users, but it also has the potential to give the cryptocurrency space the legitimacy and mass public exposure it needs. That’s great news, but does it come with a cost?
Choosing Switzerland, the bastion of global banking, as the location for what Facebook calls the Association, a not-for-profit organisation tasked with the governance of the Libra ecosphere.
The Association will oversee the operation of the Libra blockchain, the coordination, and agreement between Libra stakeholders (the network’s validator nodes), and the promotion and expansion of the network, including the management of the asset reserves.
The Association will be managed by the Libra Association Council, the founding members, as stated on the white paper, will be made up of businesses, including Visa, Mastercard, PayPal, eBay, Spotify, Uber, and Vodafone, as well as non-profit and multilateral organisations and academic institutions.
Backed by leading venture capital firms, it’s estimated Facebook will raise around $1 billion from the initial founding members.
By announcing Libra now, and by bringing in the global stalwarts of payment systems like Visa and Mastercard, along with trusted brands like eBay, Spotify and Vodafone, Facebook is, by its sheer size and market reach, saying we are here, we are ready, and we are backed by the names you know and trust.
Any mistakes by other stablecoin issuers will have the public looking to Facebook to provide a better solution.
By solving a problem, by holding out a “helping hand” to those outside of the system, Facebook gets access to billions of new customers.
Using transmutation on your research findings, you’ll discover India is the country with the highest number of Facebook users, with approximately 300 million.
Using data from the world bank, you’ll also discover that India has the second highest percentage of unbanked citizens in the world with 11% having no access to financial services.
Facebook, by forming the Association and bringing in globally-trusted brands may also soften the Indian central bank’s stance on cryptocurrencies.
The highest distribution of Facebook users by age is between 18 and 34. 68% of Americans use Facebook, and 74% of global users engage with Facebook at least once a day. 43% of global users use Facebook as their primary source of news, and 96% of all users interact with the platform on a mobile device.
Is this the beginning of the Velvet Revolution in cryptocurrencies? Change not through force, but through the soft touch of the familiar.