Fitch Ratings reviews Facebook GlobalCoin saying it can create price stability and can be used as a positive exchange tool.
June 25, 2019, | AtoZ Markets - Last week Tuesday, social media giant, Facebook unveiled the much-awaited Libra coin whitepaper. The wave of interest in the yet to be launched digital currency continues to rise around the world. It seems the movers and shakers are joining the party with Libra getting a new and powerful backer in Fitch. The large credit rating agency published its support in a recent report.
This, however, raises the question, what exactly does Fitch love about Facebook’s Libra? Well, the credit rating firm has clearly got a soft spot for Facebook as they clearly praised Libra's fiat-backed status. This was acknowledged in the agency's statement:
“A potential advantage of Libra versus other cryptocurrencies is its full backing by a reserve basket of fiat currency assets managed in a reserve fund implemented like a currency board. The size of the reserve fund will be a function of transactional demands, not an arbitrary supply limit or other algorithm as in other cryptocurrency implementations.”
Fixed supply limit incapacitate Bitcoin
As Fitch writes off one of the core concepts of Bitcoin as “arbitrary”, it is more than likely not going to sit well with some figures in the crypto world. To justify its viewpoint on the Facebook coin, the rating agency suggests that Libra will see long-term benefits from its fiat-backed status.
“These measures could preserve price stability, avoiding the speculative nature of existing cryptocurrencies and improving its utility as a medium of exchange and store of value, which is the key to long-term viability.”
Libra Association Targets the ‘Unbanked’
Fitch thinks that Libra will function broadly just like a fiat currency. Thus, it has better functionality than Bitcoin. The underlying concept of Libra makes many analysts like CNBC’s Joe Kernen say that Facebook’s token is not a cryptocurrency. However, the Libra Association has strived to justify its existence well aware of the criticism.
According to Fitch, the Libra Association estimates 1.7 billion adults around the world have limited access to bank services. The association thinks that this unbanked population can be served by Libra with near costless transactions and remittances.
Facebook must tread cautiously
The concept of enhancing financial inclusion prompted Mark Carney of Bank of England to speak. It is evident that Facebook is striving to abide by the set regulations. Mark Zuckerberg strives to not appear as a ‘rogue agent’ as some have labeled him.
As AtoZMarkets earlier reported, the US Congress will hold a second hearing on Libra in July. The chairperson of the House Committee, Maxine Waters, called on Facebook to suspend development of their project. Thus, every move the social media giant makes from now on must be well calculated to avoid ruffling the regulators.
Facebook Libra interest boost Bitcoin price
Despite Fitch’s support for Libra and slight fuzz of fully decentralized tokens, the institutional interest in cryptos has helped Bitcoin price to surge. If all FANG companies launch a cryptocurrency, it remains mysterious of how Bitcoin and it's limited supply and decentralized nature will survive. Focusing just on Libra, the reaction could be extremely positive.
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