WSJ: Libra Is a License to Print Money

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Mon, 06/24/2019 - 06:02
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Alex Dovbnya
The holders of the Libra coin will always be on the losing side due to Facebook’s atrocious incentive model    
WSJ: Libra Is a License to Print Money
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In his recent Wall Street Journal op-ed article, senior markets columnist James Mackintosh shared his take on Facebook’s cryptocurrency, explicitly calling it “a license to print money.”

Prior to that, regulators and politicians around the world expressed their concerns about the ambitious project while Facebook’s co-founder explained why it could be dangerous for the global financial system.

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An enticing investment opportunity

As reported by U.Today, Facebook launched its Libra cryptocurrency on June 18 after teaming up with such juggernauts as Visa, Paypal, Mastercard.

Mackintosh points out that the $10 mln fee that these companies forked out to be part of the Libra consortium will generate them great returns (up to 40 percent).    
    
A roster of corporations that got behind it from the get-go will be able to get the interest on tens of billions in reserves when Libra becomes a go-to currency for a large chunk of its Facebook’s 2.4 bln audience.

Even if the new coin doesn’t manage to reach a sufficient level of adoption, the early backers will be just fine since they would find other ways to remain profitable (such as brokerage fees).

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Libra holders will pay the price  

Facebook seems to pitch Libra to its enormous user base as a stable alternative to volatile cryptocurrencies (the coin will be backed a slew of fiat currencies).

However, its reserves could still drop in value that would depreciate Libra as well.

The coin’s holders will also end up on the losing side in case a black swan event that affects the reserves given that there is no capital insurance.

Hence, the losses will also lie with the users of Libra, not its backers.

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About the author

Alex Dovbnya (aka AlexMorris) is a cryptocurrency expert, trader and journalist with extensive experience of covering everything related to the burgeoning industry — from price analysis to Blockchain disruption. Alex authored more than 1,000 stories for U.Today, CryptoComes and other fintech media outlets. He’s particularly interested in regulatory trends around the globe that are shaping the future of digital assets, can be contacted at alex.dovbnya@u.today.