Economist: Libra Stablecoin Still Represents a Threat to Bitcoin

Economist and academic John Vaz thinks that Bitcoin (BTC) still faces strong competition from Facebook’s troubled Libra project.

Vaz said that Bitcoin experiences scaling difficulties when it comes to payments and was used disproportionately as a vehicle for speculation. Comparing it to Libra, he said that the stablecoin has been purpose-built to scale as a payments network and could quickly become a major competitor despite its current troubles with regulators.

“Libra isn’t dead,” he said,“they’re just navigating the regulatory nightmare.”

However, Vaz dismissed central bank digital currencies (CBDCs), calling them a weak “defensive posture” in response to the growing threat crypto assets posed to their control control over money supply and credit.

Vaz stated that “the biggest competition for Bitcoin comes from other cryptocurrencies”.

Facebook’s Libra is very interesting

While noting that Facebook is confronted by public mistrust, Vaz stated that the proposed model for the Libra stablecoin was “very interesting” — stressing on both the basket of assets supporting the stability of the instrument, and the existing networks which can be used by large tech companies.

The economist noted that companies such as Facebook could reap benefits from their current user base and said that financial transactions were already taking place.

“They are targeting a market which is ready-made for them in the sense that people are already making transactions on Facebook, and Messenger, and WhatsApp, and Instagram — they own the lot. So they’ve got the message traffic, and those people are doing economic transactions already using fiat.”

Thus, Vaz stated that Libra would launch with “a very large ‘domain possibility’ — perhaps more than any other cryptocurrency from day one.”

He predicted that Libra would initially target developing countries rather than developed ones, and said: “They will entrench themselves there — where people are already heavily using the apps and they have a need for payments.”

CBDCs constitute defensive reaction to cryptocurrencies

Vaz doesn’t consider central bank digital currencies as decent competitors to crypto assets and stablecoins, as they are “a defensive posture”:

“They will be a kind of rearguard action being fought by the central banks because they don’t like cryptocurrency.”

Rather than central banks being a threat to Bitcoin, John believes that Bitcoin and other cryptocurrencies threaten to undercut banks’ control over the money supply. He said: “It takes away their ability to pull a lever in the economy because under things like Bitcoin, you can’t create money by the way of credit.”

“Banks can lend that money up to maybe eight or nine times on a fractional reserve system. So a lot of banks create massive money supply on the fractional reserve system. Under Bitcoin, you can’t lend what you don’t have.”

Vaz believes that CBDCs do not bring any benefits except peer-to-peer settlement — “which you get by default with cryptocurrency.” “Central bank digital currencies are probably more about tracking money than providing benefit,” he added.