The emergence of the COVID-19 pandemic and Artificial Intelligence have propelled the digital transformation of the business world, accelerating the use of eCommerce transactions. Cryptocurrencies have witnessed a shift in momentum and become a favorite among investors, despite their volatile nature.
The booming trade of cryptocurrencies has attracted giant companies to launch their own digital currencies. One such company to jump on the crypto bandwagon is Facebook (FB). Through its digital currency group, the Diem Association, FB plans to launch its first-ever digital currency, Diem, later this year. The social networking giant aims to transform the FinTech industry after overcoming strong opposition from regulators.
Though Bitcoin, Dogecoin, Ethereum, and many other altcoins are gaining popularity, leading to institutional endorsements, major international economies are still not in favor and remain skeptical about cryptocurrencies.
Facebook aims to launch Diem as a U.S. dollar stablecoin together with 26 commercial companies and non-profit organizations. The company’s application for a payment system license has recently been transferred to the United States regulator after its initial application with the Swiss financial regulator.
These virtual coins, which are not under the control of any central authority, use blockchain technology for decentralized, transparent transactions. The Diem Association will initiate an intricate blockchain digital payment system enabling real-time eCommerce transactions with Diem stablecoins.
These transactions will be registered with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network, while the Silvergate Bank in California will issue and manage the single U.S. dollar-backed Diem.
To safeguard active users' privacy and minimize money laundering and cyber attacks, Facebook’s Diem is protected by updated blockchain technology. The initial launch in 2021 is aimed at attracting merchants and lucrative partnerships.
Facebook already owns a digital currency project named Credits to make easy payments for Facebook games. CEO Mark Zuckerberg mentioned that users will be able to transfer money as easily as sending photos. Diem is designed to enable users to transfer money more cheaply which in turn, is expected to bring more users to Facebook. The Novi digital wallet, a subsidiary of Facebook, currently provides affordable access to certain financial services.
The Diem Association plans to launch two sets of cryptocurrency coins, a stablecoin and a multi-currency coin. The former will have a specific U.S dollar or Euro face value, while the latter, with multiple local stable coins, will be used for global payments. These coins will be backed by cash, cash equivalents, and government securities. Diem is the only digital currency project to have a user base in the billions globally involving strong companies and other potential hi-tech companies.
According to a Facts and Factors April market research report, the global cryptocurrency market is anticipated to be worth more than $5,190.62 million by 2026. The market was worth $792.53 million in 2019, giving it an expected compounded annual growth rate (CAGR) of 30% between 2019 and 2026.
Recent Moves in the Crypto Market
Recent comments by Tesla Inc. (TSLA) CEO Elon Musk related to the company's Bitcoin holdings have shaken the cryptocurrency market and caused the Bitcoin (BTC) price to plummet.
Notably, earlier this year, Tesla’s revelations of buying $1.5 billion worth of Bitcoin and accepting it as a form of payment acted as a catalyst for the cryptocurrency market.
In the last 24 hours, the cryptocurrency market has stabilized slightly with most of the top 10 currencies by market cap regaining some of their earlier losses. Bitcoin (BTC) and Ethereum (ETH) were flat, while Ripple (XRP) and Polkadot (DOT) had bounced 7.5% and 3% respectively at the time of writing. However, Cardano (ADA), Dogecoin (DOGE) and Internet Computer (ICP) were still trading in the red, losing 2.7%, 1.7% and 6% respectively.
With the recent dip in cryptocurrency prices, the companies with exposure to cryptocurrencies have also shown a declining trend. For example, Coinbase Global (COIN), which operates as a cryptocurrency exchange platform, has declined 14.1% in the last five days.
On May 13, Mizuho Securities analyst Dan Dolev reiterated a Hold rating and a price target of $315 (26.9% upside potential) on the stock.
Dolev said, “COIN just reported its full 1Q21 results and provided updated guidance for the year. Results were strong, and the outlook from an MTU perspective has never been more promising.”
“COIN noted that it launched its Coinbase Cloud offering with Bison Trails serving as the foundation for this suite of cloud-based crypto computing services. It argues that this product allows companies to send and store crypto, accept crypto payments, and build their businesses with infrastructure for staking and delegating,” the analyst added.
Recently, BTIG analyst Mark Palmer maintained a Buy rating and a price target of $500 (101.4% upside potential) on the stock.
Palmer commented, “One of the primary reasons why we view Coinbase Global as well positioned to drive rapid growth by serving as an on-ramp for retail and institutional investors seeking to gain exposure to cryptocurrency is the company’s strict adherence to regulatory requirements, which has enhanced its position as a safe haven in a nascent industry featuring many less compliant exchanges.”
The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on 7 Buys and 4 Holds. The average analyst price target of $416.55 implies 67.8% upside potential to current levels.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.