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Will Facebook's Policy Tweak Remove Libra Launch Hurdles?

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Facebook’s (FB - Free Report) digital currency Libra may be a point of debate among government officials and media but the new venture holds promise with growing adoption of digital payment systems over traditional ones by smartphone users globally.

Notably, the cryptocurrency market is expected to reach $1.40 billion by 2024, at a CAGR of 6.18% between 2019 and 2024, per Markets and Markets report.

Facebook’s cryptocurrency project will reportedly offer its users digital versions of government-backed currencies, including the U.S. dollar and the euro, in addition to the proposed Libra token when it is eventually completed and is ready for launch, per a recent Bloomberg report.

Moreover, Facebook’s Calibra digital wallet, originally slated to launch this summer, will now be launched in October 2020, per The Information report. Calibra’s core money-storing and transfer features are still set to be available on both Facebook Messenger and WhatsApp.

Following months of severe regulatory pressure and political pushback, the Calibra wallet will now support multiple currencies, of which Libra will be one.

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Facebook, Inc. Price and Consensus

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Regulatory Scrutiny to Boost User Confidence

Facebook’s Libra is expected to hurt the revenue model of banks and financial institutions worldwide. Libra’s low-fee transaction is most likely to encourage consumers to hold and use the digital currency.

Facebook is also expected to use Libra to penetrate the underbanked population in regions like South-East Asia, East Africa and Latin America. This will further limit opportunities for banks in the long haul.

Although regulation and scrutiny can act as hurdles, we believe intense scrutiny will improve consumer confidence in Libra.

Facebook’s initiative can be a game changer. Even if a fraction of the company’s user base of 2.5 billion adopts the cryptocurrency, it will boost Libra’s credibility to a massive extent when compared with digital currencies like bitcoin.

Furthermore, use of currency-pegged stablecoin is expected to provide faster, cheaper and more inclusive payment services, in line with Facebook’s strategy. Libra’s low transaction fee is likely to attract consumers.

Libra Association Adds New Members in 2020

Per a recent Techcrunch report, $28 million-funded crypto startup Tagomi will be the newest member of the Libra Association, following Shopify, which joined last month after PayPal, eBay, Visa, Stripe and other high-profile partners ditched the association governing Facebook-backed Libra stablecoin last year.

Like Shopify, Tagomi will become a validator node operator, gain one vote on the Libra Association council and earn dividends from interest earned on the Libra reserve in proportion to its investment, which is $10 million at a minimum.

Libra Faces Potential Competition Ahead of 2020 Launch

A potential competitor to Libra in developing countries could be China’s yuan-backed Central Bank Digital Currency (CBDC), which can operate through the likes of Tencent’s (TCEHY - Free Report) WeChat, Alibaba’s (BABA - Free Report) AliPay and UnionPay.

Reportedly, the People’s Bank of China is viewing Tencent and Alibaba as prospective issuers of digital yuan, China’s first cryptocurrency. This would give them first-mover advantage when the cryptocurrency finally hits the market.

However, the expected launch of Libra and Walmart’s (WMT - Free Report) Stable Coin could pose a threat to WeChat Pay as it expands outside China.

Further, other central banks, including the European Central Bank, South Korea’s Bank of Korea and the Reserve Bank of India, are also reportedly looking into the potential of state-backed stable cryptocurrencies, which increases Libra’s prospects.

Zacks Rank

Currently, Facebook carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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