Libra Cryptocurrency: Should You Invest?

Facebook's Libra cryptocurrency has been the subject of much discussion and speculation since its announcement in June 2019. Libra is unique in that it is a stablecoin, backed by a basket of fiat currencies and cash equivalents, including government bonds. This means that for every unit of Libra in existence, there is a corresponding value of real-world assets that it can be exchanged for. However, Libra has faced regulatory scrutiny and has been forced to rebrand to Diem, shifting its majority stake from Facebook to the Diem Association. While some have argued that Libra is not a true cryptocurrency due to its centralised nature, it has nonetheless sparked interest from investors and speculators. So, can you invest in Libra? The answer is not yet straightforward. When it was initially announced, there were two ways to potentially profit from Libra: by buying Facebook shares or by buying Libra itself when it became available. However, it's important to note that Libra is not like other cryptocurrencies, and investors may not see significant gains. Additionally, Libra has not yet been officially launched, and there are still regulatory hurdles to overcome. As of May 2024, the only platform where one could buy and trade Libra Coin outside of the U.S. was the Libra Method, an automated trading robot. Investing in Libra is considered a high-risk venture, and individuals should be prepared to lose all their money.

Libra is not the next bitcoin, but you can still make money from it

Facebook's Libra cryptocurrency is not the next bitcoin. Unlike bitcoin, Libra is not decentralised and anonymous. It is controlled by the Diem Association, an independent non-profit organisation based in Switzerland, which is in charge of validating transactions and managing the Libra Reserve.

However, you can still make money from it. Here are some ways to do so:

Buy Facebook shares

As Facebook is the company behind the Libra cryptocurrency, buying shares in the company could be a way to benefit from the success of Libra.

Buy Libra

When it becomes available, you can buy the Libra cryptocurrency itself. However, it is important to note that Libra is not like most other cryptocurrencies. It is a stablecoin, which means its value is pegged to a basket of fiat currencies and cash equivalents. This means that for every dollar of Libra in existence, there is, in theory, a "dollar" worth of real-world assets that the token can be exchanged for.

Buy Libra Investment Tokens

Libra Investment Tokens are only available to Facebook and its corporate partners. These tokens represent voting power over how the reserves that back the Libra cryptocurrency are managed. The holders of these tokens will also collect any interest accrued on the reserves.

Buy bitcoin

As Libra is backed by reserves and tied to the US dollar, it could bring millions more people into the bitcoin economy. Therefore, a subtler and more volatile bet could be to buy bitcoin instead.

Libra is a high-risk investment

Firstly, Libra is not yet available to buy or trade. The cryptocurrency was announced by Facebook in June 2019, and it was expected to become available in early 2020. However, due to regulatory scrutiny, Libra has been forced to rebrand to Diem and shift its core mission. As of September 2024, the Diem coin, wallet, and blockchain are still under development and have not been launched officially. Therefore, there is a risk that the Diem coin may never be launched, or it may take a long time to come to market, which could affect its value.

Secondly, Libra is a centralized payment system. Unlike other cryptocurrencies such as Bitcoin and Ethereum, Diem is controlled by the Diem Association, which is responsible for ensuring the validity of the network. Each member of the association runs validator nodes for the Diem token. This centralization could be a risk factor as it goes against the decentralized nature of blockchain technology and could make the network more vulnerable to attacks or disruptions.

Thirdly, Facebook has a flawed track record when it comes to privacy concerns. There are concerns about how well Libra user data will be protected, given Facebook's history of data breaches and privacy violations. This could lead to regulatory issues or loss of confidence in the cryptocurrency, affecting its value.

Additionally, regulators have yet to approve the coin, and it is still under scrutiny in the US and India. There is a risk that Diem may face significant regulatory hurdles or even be banned in certain jurisdictions, which could limit its adoption and impact its price.

Furthermore, while Libra seeks to address the volatility of other cryptocurrencies, it is still a high-risk investment. As with any cryptocurrency, the value of Diem could fluctuate significantly, and investors could lose money. It is important for potential investors to understand the risks and only invest what they can afford to lose.

Libra is not decentralised

Libra is a cryptocurrency that was announced by Facebook in June 2019. It is important to note that Libra is not yet decentralised.

Facebook CEO Mark Zuckerberg testified that Libra would not be decentralised, stating that as a big tech company, "we aren't going to do something decentralised". Currently, the underlying blockchain nodes are run privately by members of the Libra Association, which includes heavyweight backers such as Visa, Mastercard, and Uber. This means that people have to trust the Association, rather than the blockchain itself, as is the case with public blockchains.

The centralised nature of Libra has been a cause for concern, with critics arguing that it goes against the fundamental principles of cryptocurrency, which is supposed to be about decentralising power. Libra, on the other hand, could further entrench the power of Facebook, which already has a vast reach and influence.

Additionally, the Libra Association functions as a de facto central bank, actively managing the currency for stability. This is in contrast to decentralised cryptocurrencies like Bitcoin, which are not controlled by any central authority.

It is worth noting that Libra does plan to eventually transition to a permissionless model, but this has yet to happen, and there are significant political and technical hurdles to clear before that can take place.

Libra is not a speculative token

Libra is a stablecoin, a type of cryptocurrency that is asset-backed to maintain a stable price. In the case of Libra, it will be backed by a basket of "leading currencies and government securities", with the goal of giving each Libra coin intrinsic value, to prevent speculation and mitigate volatility.

The Libra Association, which governs the Libra blockchain, will manage the reserves that back the Libra coin. These reserves will consist of bank deposits and short-term government bonds in stable currencies, which will ensure that the Libra coin is equipped with an intrinsic value. This is in contrast to other popular cryptocurrencies, which are often highly volatile.

The Libra Association has also announced that it will not pursue any kind of currency policy but will instead follow a rule-based approach, where the circulating supply of Libra coins depends on the fluctuating demand for Libra, which might grow or shrink over time. This is intended to contribute to the credibility of the Libra coin as a stable medium of exchange and store of value.

Furthermore, Libra is designed to be a global virtual currency that will empower billions of people in emerging economies who often lack access to banking or other financial services. It aims to enable worldwide monetary transactions in a stable digital currency at close to zero marginal costs, fostering financial inclusion and improving access to financial services and capital.

While Libra may offer an enticing investment opportunity due to its backing by real assets, it is important to note that the spoils will not go to the Libra holders among the general public. Instead, heavyweight backers such as Visa, Mastercard, and Uber will collect any interest accrued on the reserves through Libra Investment Tokens, which also represent voting power over how the reserves are managed. Therefore, Libra is not a speculative token but rather a stable and less volatile form of cryptocurrency.

Libra is a stablecoin

The Diem Dollar, however, will be pegged to the US Dollar on a 1:1 ratio. This is because the original multi-currency basket idea was walked back due to regulatory pressure from lawmakers in the US and abroad. The other currencies within the basket and the composite may still be rolled out at a later time.

The Libra Reserve will come from Facebook and its partners, but if you buy Libra for cash, your cash will also be part of the reserve. This reserve is then invested in low-risk assets that will yield interest over time. The revenue from this interest will first go to support the operating expenses of the Libra Association, and then, in part, to pay dividends to early investors in the Libra Investment Token.

Diem, previously known as Libra, is built on blockchain technology, ensuring a transparent and secure transaction history distributed across different systems. Diem is launching its own protocol called the Diem Blockchain, which will use an innovative smart contract language called Move.

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