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  • Writer's pictureIshfaaq Peerally

FACEBOOK Cryptocurrency LIBRA Explained


Let's first talk about the $BMY - $CELG deal. Regulators will only approve the deal if $CELG sells the rights to its drug Otezla. Although, the market has reacted badly to the news, I don't think that this will affect the deal. That's some of the risk you should take when making any merger arbitrage trade. I actually took all my profits on $CELG last week but I may buy more now that the premium is well above 8%.

Another deal happening soon is the acquisition of $CZR by $ERI . I don;t really like the deal since $CZR is much bigger than $ERI but the deal has a great probability of happening since $CZR is still struggling since its 2015 bankruptcy. Carl Icahn is also pressuring the sales as he is the largest shareholder of $CZR . I may do an arbitrage trade on this one as well since there is a 9% premium.

Now let's talk about Libra, the $FB cryptoccurency. Actually, that's a misnomer since $FB will have limited power over the Libra once it is launched next year. There are three things we should know about Libra:

1. How is it different from $USDOLLAR $BTC $GOLD and $JPM Coin

2. How does this affect people

3. How does Facebook profit from it

1. Libra is based on three important things:

i) The Libra Blockchain

This is a blockchain similar to that of $BTC or $ETHEREUM where the Bitcoin and Ether are the respective currencies. Each of these blockchains are different and have different functions but most of them are decentralized, which means, that nobody has any power on them. But this is different for Libra which will be initially controlled by the Libra Association but eventually it will be becoming more independent.

ii) The Libra Reserve. $BTC $USDOLLAR or even $GOLD do not have any intrinsic value. What gives gold its value is that there has been a market for it for more than 5000 years, otherwise, it is just a piece of metal with very limited uses. The USD or any other fiat currency, likewise, have no intrinsic value but they are issued by a state and have their market value from the performance of that state. Although, in theory, the Federal Reserve System can print as much money as they want, they wouldn't want to do that since money printing causes inflation. The destructive economic conditions in Venezuela are reflected on its currency, an economic crisis in Russia from 2014 caused the $USDRUB to lose half of its value. $JPM coin is pegged to the USD. As for Bitcoin and others, their market price is determined mostly by greed and fear or if a whale just sells a large portion of their reserve. That's the reason Bitcoin can never replace fiat currency, it is too volatile. People are using it as asset storage expecting it to appreciate in value rather than making transactions with it. Nobody wants a currency that moves by 10% in a day. Libra solves this problem by being backed by short-term government bonds from multiple major economies. This will give it stability and it will be able to be used as an actual currency. I can presume that it will be traded just like any other cryotocurrency but as soon as it moves away from its intrinsic value, arbitrageurs are going to buy/sell in order to bring it back to stability.

iii) The Libra Association. This is a sort of central bank governing the Libra. Right now there are 27 members $FB (through Facebook and through an independent company Calibra), $V , $MA $PYPL $BKNG $UBER $LYFT and others. More companies will be joining in the future. To become a member, you need to pay a fee of $10 million and you need to show that you have enough assets to back the Libra that you bought from the Association. How the members win from this? They receive dividends from the Libra Reserve since these government bonds usually have a coupon.

2. Libra will greatly benefit people who don't have access to financial institutions. Most people outside the Western World don't have a bank account. Transferring money internationally can take days and there are a lot of fees to pay. Half the planet still lives on less than $5.50 a day according to the World Bank. Usually the more money you transfer, they less fees you pay. Now, think of someone in a poor country paying a 4% fee on a $100 transfer. That's about a day's work. But there is one thing that people have in poor countries, a smartphone. Libra has the possibility of empowering billions of people.

3. Initially Facebook(or any of the other members) won't profit from it. Facebook right now is making the largest contribution but once it is launches, they get only one vote just like any other member. But eventually, it can be integrated into their system by allowing Libra transfers on their apps and taking a minimal fee on these. With 2.5 Billion users, Facebook can make a lot of money from this.

Watch the full video on YouTube and Subscribe:

https://www.youtube.com/watch?v=JgnhJVzH4Rg&list=UUPO3uUyoXSaFWG-Ldq1mqEQ

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