Are You Ready for Social Media Cryptocurrency?

Well, it’s official: Tomorrow, Facebook, Inc. (FB) will make the great reveal of its long-rumored cryptocurrency, dubbed ‘Libra,’ and available as a payment alternative across all Facebook-owned online apps. We’ll take a look at what’s known, what we can expect, and then dip into TipRanks’ database to see what Wall Street’s analysts think of Facebook’s initiative and it’s probably impact on the company.

What We Think We Know – the Known Knowns

Facebook started down the crypto road about year ago, when it hired former PayPal exec David Marcus to run an “experimental” blockchain project. It’s now known that the project is more than an experiment; it is potentially a $1 billion stablecoin offering, across all of Facebook’s apps, and based on blockchain technology.

Being a stablecoin, the new cryptocurrency will be pegged to a basket of traditional currencies, insulating it from the wild volatility that has dogged the cryptocurrency market since its first introduction back in 2009.

In addition to the currency peg, the new crypto will be backed by a consortium of large investors, invited by Facebook to participate in the venture. Participating members have each paid $10 million to join the project, and nearly 30 have bought in so far. Facebook hopes to expand the membership to 100 – which is where the project’s $1 billion potential comes from.

So far, the known participants in Libra lean very heavily toward venture capital firms and established payment processors. VCs Andreessen Horowitz, Union Square Ventures, Ribbit Capital, and Thrive Capital are all in, while the payment processors include Visa (V), Mastercard (MA), and PayPal (PYPL). Ebay (EBAY), Lyft (LYFT), and Uber (UBER) are also part of the group. The conjoining of tech and finance could not be clearer.

The new Libra crypto token will be available for payment and currency transfers via Facebook, Instagram, Messenger, and WhatsApp – users will not have to download any software other than updates to their current apps.

Tomorrow’s reveal will be more in the nature of a preview; the full-scale, ready-for-prime-time launch is not likely until next year.

What We Don’t Know – the Known Unknowns

Will Facebook face regulation? If there is anything more certain than death and taxes, it’s the regulatory instinct of modern bureaucracy. Facebook has already been in the news for data privacy violations and misuse of corporate power, and there is serious talk of applying anti-trust laws to Facebook and other tech giants (Google [GOOGL], Amazon [AMZN]).

As Forbes magazine blockchain expert Caitlin Long put it, “Discussions about Facebook’s data privacy and corporate power are about to extend to money. Grab the popcorn!”

How will Facebook deal with issues regarding fraud and money laundering? This harks back to the regulatory point above, but also deals with issues of public trust. Given Facebook’s recent history of data breaches, and its clumsy response to them, will the general public trust Facebook’s blockchain currency?

As a practical matter, how will users load the blockchain wallet, and withdraw funds at the end? There are rumors that Facebook is planning a network of ATM-style machines, allowing users to convert funds to Libra – but will those transactions be purely electronic, or will users be able to withdraw cash if funds are available? What if a Libra account has funds available, but a linked back account is in overdraft – will that user find himself in a net minus, or still have access to the cryptocurrency?

And finally, what about rumors that Facebook will allow employees to draw their salary – in whole or in part – in Libra? Is that a heavy-handed attempt to boost early adoption, or a potential option that eligible workers can accept further down the line?

Sorting it Out

These are the facts and rumors, and hopefully we’ll get some clarification from tomorrow’s presentation. In the meantime, RBC Capital analyst Mark Mahaney (Track Record & Ratings) weighed in on Facebook shares, with special notice of the upcoming Libra reveal.

He said, “We believe this may prove to be one of the most important initiatives in the history of the company to unlock new engagement and revenue streams…

“We believe Facebook will use crypto to facilitate a platform for: 1) Payments; 2) Commerce; and 3) Applications & Gaming…”

Mahaney gives Facebook an ‘Outperform’ rating, indicating that he expects the stock to perform better than the general stock markets in the near term, and sets a price target of $250, suggesting a potential upside of 37% to FB. Overall, Facebook shares have a ‘Strong Buy’ from the analyst consensus, based on 34 buys and3 holds assigned in the past three months. The stock’s average price target of $222 indicates a potential upside of 22% from the current share price of $181.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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