One of the things that makes following cryptocurrency so enjoyable is the fact that it is an ever-changing entity. What holds true today might be contradicted tomorrow. What appears to be a very predictable trend for the next six months can go in the opposite direction without warning. The sea of change that is cryptocurrency prevents so-called experts from making consistently accurate predictions.
Today's post will look at three news stories that illustrate the point perfectly. The first story is about new calls for the U.S. to tokenize the dollar. The second story comes out of Venezuela, where it appears the Maduro government is stockpiling cryptocurrencies other than Petro. Finally, the third story sheds additional light on Facebook's mounting troubles as it attempts to get Libra off the ground.
The common thread in all of the stories is that the details have taken a direction few people anticipated earlier this summer. They just prove the point that no one really knows what is going to happen until it eventually happens. Cryptocurrency users and investors alike can do little more than hold on for the ride. That is not a bad thing, by the way. Volatility is one of the things that makes cryptocurrency so much fun to dabble in.
Tokenizing the U.S. Dollar
Students of cryptocurrency have long suspected that the U.S. was working on its own digital asset. Even without direct action by the U.S. Federal Reserve, there is already a stablecoin backed by, and linked to, the U.S. dollar. It is known as the U.S. Dollar Coin (USDC). However, now there is a new twist: calls among a number of crypto enthusiasts and financial analysts to tokenize America's fiat.
The most recent call was voiced by Morgan Creek Digital co-founder Anthony Pompliano during a TV interview on CNBC. Pompliano takes the position that the federal government must tokenize the dollar in order to remain competitive in what he views as a global financial landscape currently shifting toward the digital.
Pompliano pointed to China's plan to digitize the yuan as evidence that the U.S. cannot afford to fall behind. His basic premise is that the yuan could become more accessible around the world as a digital token, thereby reducing demand for U.S. dollars and potentially leading to the end of the dollar as the world's reserve currency.
Full digitization is coming
Pompliano is not the first industry expert to suggest it is time to tokenize the dollar. As others have said before him, full digitization is coming at some point. It's just a matter of how long it takes to get here. If you follow that line of thinking, it only makes sense to digitize now. Waiting until half the developed world has already digitized their fiats puts the U.S. behind the curve.
On the other hand, digitizing fiat does have its drawbacks, not the least of which is uncertainty. Venezuela, the subject of the next story in this post, provides a clear and undeniable example. They launched a digital token known as the Petro more than a year ago. It has gone nowhere.
Admittedly, the Petro was intended to take the place of the country's fiat. But it was destined to fail because Venezuela's economy is a mess. Petro has no value because the country's economy has no value. The lesson for the U.S. is as simple as not expecting the tokenization of the dollar to have a sudden, widespread, and positive impact on its economy.
It is reasonable to believe that a failure to tokenize could jeopardize the U.S. dollar as the world reserve. But that's not necessarily a given. What makes the dollar so popular as a reserve is not its availability. It is the strength of the U.S. economy. So even though China's yuan could become more accessible if they digitize first, there may not be enough faith in the Chinese economy to convince global financial interests to adopt their digital token as a reserve.
Stockpiling Bitcoin in Venezuela
While the U.S. government considers digitizing the dollar, Venezuela's government continues to stockpile Bitcoin and Ethereum. The stockpiling strategy is being managed by Petróleos de Venezuela S.A (PDVSA), the state-owned company that essentially controls the country's entire petroleum sector. The question is, why?
Venezuela is in a terrible economic position thanks to government mismanagement and international sanctions. What was once the most powerful economy in South America has been reduced to third world status for all intents and purposes. Simply put, Venezuela is broke. They cannot sell their oil on international markets and few outside companies want to set up shop there. Making matters worse is the fact that the country no longer has access to U.S. dollars.
The goal of stockpiling cryptocurrency is to give Venezuela the monetary system by which they can conduct trade outside of crushing sanctions. If they can find trade partners willing to accept Bitcoin and Ethereum, they will not have to rely on a dwindling supply of dollars to buy what they need. Rumor has it that China and Russia are on board with the plan.
Where the coins are coming from
Curious cryptocurrency enthusiasts are probably wondering where the Maduro government is getting its coins from. After all, the country doesn't really have enough hard currency to buy large volumes of crypto on the open market. And even if they did, it would be hard to find anyone willing to sell to them.
Some suspect that they have been mining coins all along. It is alleged that the Maduro government is using computer equipment seized when the government decided to take ownership of all private sector enterprises. No one really knows for sure how much equipment was seized or its potential for mining Bitcoin and Ethereum.
The ironic thing is that government leaders, even while desperately pushing Petro in hopes that citizens will embrace it, do not have enough faith in their own cryptocurrency project to place the economy on its back. A worthless Petro cannot act as a store of value. Thus, it has no value. So while Petro languishes, the government behind it is putting its money into Bitcoin and Ethereum.
More problems for Facebook
These days, it is nearly impossible to write a post detailing the latest cryptocurrency news without talking about Facebook and its Libra project. Those who have been following Libra religiously know that its chances of ever getting off the ground look continually more bleak by the day. It is amazing how far Facebook's star has fallen since releasing the Libra and Calibra White papers in June 2019.
Just a few months ago it looked like Libra was going to be the stablecoin that finally gave Bitcoin a run for its money. Speculators were betting on Facebook's infrastructure and worldwide acceptance as the two big factors that would push the coin right to the top the very minute it was launched. That was then; this is now.
Ever since Libra was announced, governments have been taking an increasingly hostile position toward it. Within days of the white papers' release, members of the U.S. Congress were calling hearings in hopes of stalling the projects indefinitely. Across the Atlantic, leaders in both France and Germany made it clear they were going to do everything they could to fight Libra in Europe.
Such government threats have not been viewed in isolation. Indeed, they are already having an impact on the Libra Association, the quasi-independent organization that is supposed to provide governance for the Libra project.
Backers having second thoughts
Fear of potential regulation has already caused PayPal to reconsider its commitment to the Libra Association. Although PayPal has not officially pulled out yet, they have threatened to do so. They have also let it be known that none of the Association's members are legally bound to the Association just yet. They have only signed informal agreements that still give them plenty of room to get out.
If PayPal's announcement wasn't bad enough, Facebook is now looking at losing the support of both Visa and MasterCard. Both credit card giants have the same concerns as PayPal. They are wary of regulators scrutinizing Libra to the point of carrying over that scrutiny into the way they do business. Visa and MasterCard do not want any more attention placed on themselves.
A chief concern of Libra is how much control Facebook will exercise over the Association. As long as the company remains directly involved, Libra can never be truly independent or decentralized. This is what has regulators so concerned. The fear among Association members is that regulators will start looking at them in an attempt to understand how their businesses intersect with Facebook's. Association members do not want to take the risk of being linked to a company that regulators are not fond of.
As you can see from these three stories, nothing in the cryptocurrency universe is settled. Everything continues to evolve as the world attempts to figure out the future of cryptocurrency and its relationship to fiat. If nothing else, now is an exciting time to be alive for people who believe in the power and potential of crypto.