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Libra is Good News for Bitcoin

09 Jul 2019 - Cryptocurrencies

Huh, Facebook’s Libra is Good News for Bitcoin?
Perhaps the most attention-gathering cryptocurrency news in the past month came on June 18th, when social media giant Facebook announced that it plans to release its own cryptocurrency in early 2020.  The early name for the cryptocurrency is the Libra.  

At first thought, a new cryptocurrency from a company with more than a billion users would be bad news for Bitcoin and other established cryptocurrencies.  In theory, if users opt for Libra for their transactions, then that would decrease demand for Bitcoin.  Grippingly, since the Libra announcement, Bitcoin’s price has been far from suppressed.

A look at the price of Bitcoin from the first of May through July 8th follows.

Bitcoin’s Price from May 1st 
Bitcoin ended April at $5,278.  On July 8th, Bitcoin was trading at $11,311.  For those that do not want to do the calculations themselves, that represents a gain of 114 percent over a little more than two months.  Almost every investor would be hard-pressed to find a liquid asset that performed better that

Bitcoin over this period (there are some, but not many).  
 


Bitcoin’s Price After Public Regulatory Comments
Bitcoin’s price responds to many factors.  In the chart above, two days seem worth pointing out.  They are indicated in the chart by two vertical, gray lines.  

The first line is when Facebook announced the Libra, on June 18th.  On this same day, Le Marie, France’s finance minister, was vociferous in his response:

“It is out of question that Libra become a sovereign currency.  It can’t and it must not happen.”

Le Marie further called for the Group of Seven central bank governors to study Facebook’s project.  

What did the price of Bitcoin do when Facebook’s Libra was announced?  Bitcoin went from $9,227 to $10,730 on June 23rd.  

The second line is June 25th, when Maxine Waters (an American politician on the committee that will study Facebook’s Libra) announced plans for the U.S. House of Representatives to study Facebook’s move.  On the 25th, Bitcoin ended the day at $10,852.  Two days later, Bitcoin gained almost $2,000, ending the day on June 27th at $12,686.  

What does Bitcoin’s price response say about Libra?  One way of putting it might be (from a Bitcoin holder’s perspective): Bring on Facebook into the cryptocurrency world, Bitcoin will be just fine.

Conclusion
It remains to be seen whether Facebook will actually release its cryptocurrency project Libra in early 2020.  Early reactions to the development from regulators appear to have been less than positive.  Interestingly, although one would think that Libra would be bad news for Bitcoin, so far Bitcoin’s price has strengthened since Facebook’s Libra announcement.  This suggests that perhaps Bitcoin is here to stay – even if social media giants tip their toe into the cryptocurrency world.

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