Bitcoin’s price fell 12% to $11,450 on Thursday. It started sliding down after Fed Chairman Jerome Powell said he had serious concerns about Libra, Facebook’s new digital currency.
“Libra raises serious concerns regarding privacy, money laundering, consumer protection, financial stability,” Powell told a congressional committee Wednesday. “These are concerns that should be thoroughly and publicly addressed.”
Powell has called for Facebook to halt the project until regulators’ questions about Libra are addressed.
Asking Facebook to halt development is pretty extreme. But the rest of the questions regulators are asking are the exact same questions they’ve asked about every digital advancement, including the internet, they’ve seen in the last 30 years.
So why is the Fed, and the House of Representatives for that matter, going the extra mile and asking Facebook to pause its work on Libra?
Because the government doesn’t trust Facebook. And it doesn’t trust Silicon Valley. It doesn’t trust the tech industry. And the distrust is bipartisan. The government is looking closely at everything Google, Amazon and Facebook do with a critical – and skeptical – eye.
There’s no reason for the crypto market to get spooked by this. The government doesn’t trust Facebook. And that’s why it’s reacting this way.
Let Facebook talk through it with regulators. Let them put everything on the table and address all the potential problems with Libra.
It doesn’t matter.
Libra is not a bitcoin competitor. It’s tied to fiat currency, so it will always be tied to fiat’s flaws.
But Libra could be good for crypto. Facebook is big enough to have a major impact on the market.
Facebook is also powerful enough to withstand the regulatory setbacks that small altcoins or other promising crypto projects may not. It’s better for Facebook to take a few blows while the Securities and Exchange Commission (SEC) struggles to clarify its crypto guidelines than for other, more decentralized projects to struggle or get shut down while fighting the same battle.
One more thing. To put that bitcoin price drop in perspective, even with the price drop on Thursday, bitcoin is up 206% since the beginning of the year. It’s never a smooth ride, but it’s steadily moving up.
On to the News Fix…
Cannabis
Lawmakers seek marijuana reform: The House Judiciary Subcommittee on Crime, Terrorism and Homeland Security held a hearing on Wednesday to seek input on how to reform federal marijuana laws. Multiple members of Congress called for loosening those laws – and even legalizing marijuana (CNBC).
“There is a growing consensus in this country that current marijuana laws are not appropriate, and we must consider reform,” said Rep. Karen Bass, D-Calif. “Today’s hearing is a first step in that process.”
One of the most popular cannabis bills is the STATES (Strengthening the Tenth Amendment Through Entrusting States) Act, which would amend the Controlled Substances Act and protect state-approved marijuana activity from federal law enforcement activity. Proponents of the bill say it goes a long way to eliminating federal concerns in legal marijuana states. But others say it doesn’t go far enough.
Researchers dispel the reefer madness myth: Researchers from Montana State University and San Diego State University have found that teenage weed consumption has declined in states where marijuana is legal. The authors of the study reported that the results fall in line with previous studies that showed a drop in teen use after recreational pot sales began in 2014 in Washington state (ABC News).
The new study found an 8% decline in the number of high school students who said they’d used marijuana in the past 30 days. It also found a 9% drop in the number of students who said they’d used marijuana at least 10 times in the past 30 days.
Florida court says state’s weed regulations aren’t gonna fly: A Florida appellate court has ruled that the state’s approach to regulating marijuana is unconstitutional. The court said the state’s vertically integrated system (companies have to grow, produce AND sell their own products) conflicts with the voter-approved amendment that legalized medical marijuana in 2016. It also ruled that the existing caps for medical marijuana treatment centers were unreasonable (CBS Miami).
If the ruling stands, Florida could also be forced to lift the cap on the number of medical marijuana treatment centers. That would be a huge win for the state’s marijuana industry.
Michigan’s recreational marijuana industry almost ready for prime time: A week and a half ago, Michigan’s Marijuana Regulatory Agency released emergency regulations for businesses planning on entering the recreational marijuana retail marketplace (Michigan Radio). Here are some of the highlights: The agency will begin accepting business license applications on November 1 and will start approving licenses by December 6, and cities and townships have until November 1 to ban marijuana businesses.
More than 600 communities in Michigan have already banned adult-use marijuana businesses. If more follow, it will create an increasingly complicated minefield for cannabis businesses in the state.
Startups
Tiger Global Management eyes India: Venture capital firm Tiger Global Management is betting big on India. The firm has examined at least a dozen deals with Indian startups in the past few months and has closed investments in at least half of them. Nearly all of the startups focus on enterprise software or fintech (Bloomberg).
SEC clears path to crypto brokerages: The SEC has issued guidance on how securities rules apply to some of the complicated compliance issues posed by digital tokens (Bloomberg).
According to the joint statement issued by the SEC and the Financial Industry Regulatory Authority, crypto brokers that store customer holdings need to keep them separate from firm assets, maintain accurate books and records, and, in certain cases, use a third-party custodian. Noncustodial services will face a lower level of scrutiny.
Any regulatory clarity on digital tokens is a welcome one, especially since the SEC has been notoriously unclear so far. This seems like a step in the right direction.
Construction tech startups may be past their peak funding period: 2018 was a record year for construction tech startup funding. U.S.-based construction startups raised $1.3 billion in the first half of 2018. Halfway through 2019, they’ve raised just $197 million (Crunchbase News).
It’s unclear exactly what caused the drop in funding. But Trevor Zimmerman, managing partner at Blackhorn Ventures, suspects 2018 may have been influenced by particularly large funding rounds. 2018 was indeed a year of mega-rounds for many startups – but 2019 is also shaping up to be a big year for IPOs. So who can say how high the venture capital money river will flow?
Crypto
Trump doesn’t like bitcoin: President Donald Trump decided to weigh in on crypto this week with one of his famous Twitter hot takes. It’s not a positive one (The Verge). He tweeted…
| I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity.
Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International. |
Speaking of Facebook…
Facebook won’t launch Calibra in India: Facebook won’t be bringing its crypto project to India anytime soon. The reason? India’s current regulatory restrictions (CoinDesk).
Last April, the Reserve Bank of India (RBI) effectively banned banks from doing business with crypto-related firms, including exchanges. Since then, several of India’s crypto exchanges have shuttered and have blamed the RBI restriction for putting them out of business.
“Calibra will respect the legislation,” Facebook representative Alexandru Voica told The Economic Times. But Voica also added that Facebook plans to work with local lawmakers to see if legislation can be amended.
Visa invests in another crypto startup: Visa has recorded its second investment in a crypto company. It led a $40 million funding round for crypto custody service Anchorage (Cointelegraph). Both companies are members of the Libra Association.
The investment is yet another indicator that Visa sees the potential of blockchain tech – and doesn’t want its own business to lag behind it.
Canadian crypto exchanges must register with financial watchdog: Our neighbor to the north is stepping up its crypto regulations (Cointelegraph). As of June 1, 2020, crypto exchanges in Canada will be legally required to register with the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC).
Exchanges will also be required to observe know-your-customer (KYC) policies, keep records of their clients and report suspicious activity to FinTRAC.
The motive behind the new policy is reportedly to get Canadian banks to work in cooperation with crypto exchanges. It will be interesting to see whether the banking industry plays nice.
Have a great weekend!
Allison Brickell
Assistant Managing Editor, Early Investing