Is Facebook’s Libra Coin The First Crypto ETF To Be Released To The Market?
- Facebook’s Libra could just be an ETF rather than a virtual currency
- Libra has the characteristics to ETFs according to analysts
Facebook has recently announced the creation of its own cryptocurrency called Libra. The virtual currency is expected to be backed by different fiat currencies and be available for WhatsApp and Facebook Messenger users.
However, Dave Nadig, the managing director of ETF.com said that Libra is essentially a currency ETF.
Is Libra A Crypto ETF?
In an article that he wrote a few days ago, he concluded that Libra is an ETF rather than a cryptocurrency. He said that as soon as he had time to check the white paper, he got interested in a specific paragraph in which Facebook explains that there are going to be authorized entities to transact large amounts of fiat and Libra in and out of the reserve.
The paragraph keeps:
“These authorized resellers will integrate with exchanges and other institutions that buy and sell cryptocurrencies to users, and will provide these entities with liquidity for users who wish to convert from cash to Libra and back again.”
This is why Mr. Nadig considers that Libra is just an ETF. He went on writing that as he continued reading the whitepaper, it became more clear that Libra was an actively managed ETF that will be investing in a basket of currencies based on a set of investment objectives.
Nadig compared Facebook’s cryptocurrency with the WisdomTree Emerging Currency Strategy Fund (CEW).
The author of the article explains that CEW does the same thing that Libra is currently planning to do, but there are just some exceptions. The first difference is that CEW charges a 0.55% expense ratio. Libra does not have a fee embedded in the valuation peg to its basket. Moreover, CEW invests in short-term instruments in each currency, while holders of CEW gain that interest.
He has also found an article that David Weisberger wrote on Medium in which he believes that Libra is an ETF. Mr. Weisberger mentioned that he would be stunned if the U.S. Securities and Exchange Commission (SEC) does not contemplate asserting that it has jurisdiction over the market of Libra tokens.
Nadig considers that Facebook, as well as Visa or PayPal, know these regulations and know how to deal with them. Basically, Facebook knows what it is doing and which are the effects this can have on the market.
Libra also wants to make transactions transparent and seamless by using blockchain technology. Nadig says that there is no way to hand Amazon a share of the SPDR S&P 500 ETF Trust (SPY) in exchange for books and groceries. Libra wants that to be possible, making it possible to move a security from “pocket A to pocket B.”
The author of the article considers that Libra is also not a stablecoin or a debt instrument. There is no “promise to pay,” but there is a “promise to exchange.” At the moment, the closest example to Libra is the M-Pesa, a global payment system that started in Kenya and has spread in the region.
The M-Pesa is a mobile banking system that has obtained special licenses from regulators in order to work as a bank. Nadig ended the article:
“To me, it’s far more likely this is the beginning of a much-needed and really interesting conversation about the role of money in the modern world. That’s the right discussion to be having in Washington, and Libra is a big enough initiative to put it on the agenda.”