Facebook spoils the cryptocurrency party
Illustration: Sarah Grillo/Axios
Thanks to Facebook entering the space, the grown-ups have come in to turn on the lights and throw cold water on the cryptocurrency party.
The big picture: Facebook's dive into cryptocurrency with its Libra project has put digital payments squarely in the bullseye of government regulators, just as Bitcoin and other cryptos had started to rebound in value.
- Bitcoin rose as high as $13,000 a coin last week, but since President Trump's Twitter condemnation of crypto as "not money" and "based on thin air" Thursday, it has fallen in value by close to 20%. It even briefly dipped below $10,000 early Monday, touching a 2-week low, data from Coindesk showed.
Driving the news: Treasury Secretary Steve Mnuchin on Monday said the U.S. government had "very serious concerns" about crypto's growth and its potential use in money laundering and financing terrorism.
- "This is indeed a national security issue," Mnuchin said.
Cryptocurrencies had largely flown under the regulatory radar for much of their existence, and Wall Street had effectively bailed out of further engagement in March. But the combination of anonymous peer-to-peer currency creation joined with a lightning rod like Facebook created an unholy union that just about everyone could find a reason not to like.
- "People don't trust Facebook right now," Sen. Sherrod Brown told Bloomberg News on Friday. "They've earned that mistrust or distrust — from the 2016 election to how they’ve rolled out Libra. And we're watching."
- Brown added that Facebook's entrance into the space has created a bipartisan skepticism, and fresh hunger for more investigation.
- Democrats on the House Financial Services Committee have reportedly circulated a proposal to prevent big tech companies from functioning as financial institutions or issuing digital currencies.
The big picture: Global central banks recently have been contemplating issuing digital currencies and creating regulations around the broader digital payment space — though as incoming ECB head Christine Lagarde said in March, that would exclude cryptocurrencies, which are created by users on a blockchain outside the auspices of monetary authorities.
- Without a market or monetary policy solution, the federal government is pushing to regulate crypto and taking an increasingly hard line.
What's next? David Marcus, co-creator of Libra, released a statement to the Senate banking committee saying Facebook would work closely with regulators before launching the currency, and promised it would not compete with central banks. He's expected to address members of Congress today.
Go deeper: Facebook's mellowed-out crypto
Editor's note: This story has been updated to correct the spelling of Sen. Sherrod Brown's first name.