What does Facebook crypto currency mean for Bitcoin

Facebook's cryptocurrency has a new name: Diem instead of Libra

Diem instead of Libra: The cryptocurrency, largely supported by Facebook, is now trading under a new name in order to emphasize its independence from the American Internet company. The renaming is part of a move towards a simpler structure, the chief executive of the Geneva-based Diem Assocation, Stuart Levey, told Reuters on Tuesday. Bitcoin slipped significantly after a record high to $ 18,100

Diem, which means day in Latin, should become a digital coin linked to the dollar. Levey did not give a schedule for the introduction. First of all, the approval of the Swiss supervisory authorities must be given. Facebook remains an "important member of the association," which has 27 members, Levey said. "We're not trying to cut all connections, by no means."

The name change is intended to underline that the Diem Association "works autonomously and independently," he added. Diem seeks to differentiate itself from other crypto providers by addressing issues important to regulators and Western governments - including sanctions controls and financial crime, Levey said.

Big stir

With its plans for its own digital money, Facebook had called on governments, supervisors and central banks around the world. In April, the Libra Association in Switzerland, which was founded to develop the Cyberdevise, submitted an application for approval as a means of payment. However, many governments have reservations about letting Facebook penetrate the financial sector with a digital currency. Because of the advance of cryptocurrencies, the European Central Bank (ECB) is now considering creating a "digital euro".

The existing crypto currency Bitcoin, however, is not for the weak-nerved investor. After the digital currency, which is the largest digital currency in terms of market volume, hit another record high on Tuesday morning, it collapsed in the afternoon. In the morning, it initially looked as if the cryptocurrency could exceed the $ 20,000 mark for the first time. At 19,918 dollars, a record high has meanwhile been set on the Bitstamp trading platform. In the early afternoon, the price fell to $ 18,100.

The Internet currency, which was around a decade old, only passed its record high from 2017 on Monday. This had raised hopes among optimists that the price increase this time would be more sustainable than during the wild record hunt about three years ago. At that time, the drastic price increase was followed by an equally drastic price decline.

Hope for stability

Bitcoin proponents give solid reasons for their hope for more stability. A few weeks ago, the large payment service PayPal granted a kind of accolade by announcing payment with Bitcoin and Co. It is also stated that professional investors such as asset managers are increasingly interested in cryptocurrencies, which makes short-term price capers at least less likely.

The most recent price move, however, is more likely to confirm the warnings from consumer advocates who see crypto currencies as a "high-risk object of speculation". "Crypto currencies are subject to strong exchange rate fluctuations," warned the Hamburg consumer center recently. Their value depends solely on demand. "If demand collapses, the currency will also lose value." The consumer advocates point out that Bitcoins do not generate any additional interest. "Another disadvantage: the market for crypto currencies is not regulated by a financial supervisory authority. There are no state security systems."

Scarce resource

In the long-term valuation of Bitcoin, the fact that the cryptocurrency is defined as a finite resource and thus a basically scarce good plays a decisive role. In 2008, someone using the pseudonym Satoshi Nakamoto published a document describing a digital currency. In 2009 the associated Bitcoin software was made public. The highest number of Bitcoins has been set in the paper at just under 21 million Bitcoin. This maximum amount of money is also tied down in the Bitcoin code. Therefore, additional money cannot be "printed" here as with conventional currencies that are under the control of a central bank.

Compared to trading in other scarce assets such as gold, however, Bitcoin is a comparatively small project. Against this background, experts like the Frankfurt economist Philipp Sandner point out that the Bitcoin market has relatively little liquidity. "This is also a reason for the high volatility."

State regulation

The value of Bitcoin is also threatened by possible government regulation. If economic areas such as the People's Republic of China, the United States or the European Union were to strictly regulate or even prohibit trading in Bitcoin, the exchange rate with the classic currencies could collapse accordingly. In addition, Bitcoin competes with other cryptocurrencies such as Ethereum or Ripple's XRP, which can also be "mined" with significantly less power consumption. (APA, December 1st, 2020)