If it once seemed possible, among crypto-enthusiasts, for a currency to exist outside the reaches of a central government authority, U.S. Regulators did their best last week to stamp out such beliefs.
U.S. Officials not only succeeded in dealing Facebook’s Libra cryptocurrency project a $1 trillion blow (the combined market cap of the seven major companies that have dropped out) after U.S. Senators sent letters urging their CEOs to “be extremely cautious about moving ahead with a project that will foreseeably fuel the growth in global criminal activity.”
Regulators at the U.S. Securities and Exchange Commission also temporarily froze messaging app Telegram’s $1.7 billion digital token sale, at least temporarily—through the use of an emergency restraining order on Friday.
And now, some of Silicon Valley’s most respected technology analysts are warning that even if the U.S. Wins its latest anti-cryptocurrency crusade, it could end up losing in the long run—to China.
After Facebook announced Libra in June, China’s central bank accelerated the development of its own cryptocurrency, RBC Capital Markets analysts Mark Mahaney and Zachary Schwartzman pointed out in a report Tuesday. “If U.S. Regulators ultimately dismiss Libra and decide not to draft regulation to encourage crypto innovation in the U.S., China’s central bank digital currency may be strategically positioned to become the de facto global digital currency in emerging economies,” they wrote.
The key, according to the analysts: Chinese messaging and payment apps such as AliPay and WeChat would serve as conduits for the adoption of China’s digital currency, as they “represent the greatest opportunity to onboard consumers to digital wallets.”
Indeed, the vision Facebook laid out in a white paper for its cryptocurrency described Libra as a way to turn messaging apps like its own Facebook Messenger (with some 1.3 billion users) into an easy payment platform: “Just as people can use their phones to message friends anywhere in the world today, with Libra, the same can be done with money — instantly, securely, and at low cost,” Mahaney and Schwartzman wrote.
Meanwhile, Telegram, whose encrypted messaging app has some 200 million users, sold $1.7 billion worth of “Gram” tokens on a similar premise that they could be transferred through the app. U.S. Regulators have so far objected just to the method by which the tokens were sold—the SEC alleges it was an unregistered and illegal sale of securities—as opposed to their proposed usage. But the crackdown threatens the future of the Gram project itself.
RBC’s analysts didn’t specifically discuss the SEC action against Telegram in their report. But it stands to reason that abolishing or delaying Telegram’s cryptocurrency further clears the way for China to dominate in message-based digital payments.
That’s probably not the outcome the U.S. Government desires: At a time when the Trump administration is waging a trade war with China using tariffs to maintain the upper hand, China’s digital currency could potentially upend the foreign exchange dynamics entirely, circumventing American control.
The RBC analysts hint it might behoove U.S. Government officials to work with Libra, rather than against it—and welcome its corporate partners back into the fold: “If a clear regulatory roadmap is developed and Libra launches successfully, we would not be surprised to see these firms reapply to the association,” they wrote.
If American regulators are really playing the long game with China and the global innovation race, perhaps they shouldn’t dismiss Libra so quickly.
Jen Wieczner | @jenwieczner | [email protected]
THE LEDGER'S LATEST
Facebook's Libra Coalition Craters, as Visa, Mastercard, eBay, and Stripe Exit the Crypto Partnership – Robert Hackett and Jeff John Roberts
IRS’s New Cryptocurrency Rules Create ‘Messy’ Problems for Industry – Jeff John Roberts
Texas Bitcoin Mining Startup Gets $50 Million From Peter Thiel to Steal China’s Crypto Crown – Jeff John Roberts
Crypto Investment through Grayscale Up 300% in Third Quarter – Jeff John Roberts
DECENTRALIZED NEWS
To the Moon…
‘Satoshi,’ the term for one hundred millionth of a bitcoin, is added to the Oxford English Dictionary. Nigerian lending platform Lidya expanding its data-driven loans into Poland and the Czech Republic. Santander and Goldman Sachs invest in digital lending. Ethereum's massive Devcon 5 conference was a success, despite controversy over scaling. 14 blockchain startups led by MouseBelt have formed an alliance to support research and education in the field. Latin American ecommerce leader MercadoLibre will further develop its payments tool, MercadoPago.
Rekt…
Swiss bank CBH is implicated in Venezuelan corruption. As major partners withdraw from Facebook’s Libra, the G7 says the stablecoin is a systemic risk. The SEC halts Telegram’s $1.7 billion crypto token sale in the U.S. New IRS guidance declares cryptocurrency forks are taxable events, which could create all sorts of headaches.
FOMO NO MO'
More than any external attacker, the biggest threat to Bitcoin’s security is baked into the protocol itself. The block subsidy schedule, which declines as part of Bitcoin’s fixed emission schedule, will lead to lower commitment from miners. If a robust blockspace market doesn’t develop, we explain why a decline in block rewards poses a substantial risk for the future.
From: “A model for Bitcoin’s security and the declining block subsidy,” a new in-depth research paper from Uncommon Core. The upshot? Without sufficient transaction volume or other demand to use bitcoin’s “blocks” of data, the whole system could be at risk as payouts to miners decline. The next drop in block rewards comes in roughly May of 2020.
BALANCING THE LEDGER
This week we spoke to Catherine Coley, the new CEO of Binance US. That's the U.S.-focused offering of dominant global crypto exchange Binance, and we asked Coley about challenges including America's more restrictive regulatory environment, and established competitors including Coinbase and Kraken.
MEMES AND MUMBLES
What I take issue with is the behavior towards the handful of people who do provide disclosure, while openly praising many of those who do not and engage in far more sinister behavior... It incentivizes people *not* to disclose anything. Do you ever notice how few people in this industry disclose anything?
From: Blockchain investor Meltem Demirors, in a Twitter exchange regarding media treatment of the blockchain startup Blockstack. Blockstack has made a point of following legal and accounting norms, including high levels of transparency. That has led—somewhat predictably—to critical analysis of its financial reports. Demirors argues that could, perversely, discourage other startups from following its lead on reporting.
This edition of The Ledger was curated by David Z. Morris. Find past editions here, and sign up for other Coins2Day newsletters here. Question, suggestion, or feedback? Drop us a line.
