Cryptocurrency lobby fights to contain backlash from Facebook’s Libra
Facebook Inc.’s Libra is already in the firing line of regulators and lawmakers. Backers of other cryptocurrencies are now fighting to ensure the fusillade doesn’t take them down, too.
Crypto lobbyists are trying to convince lawmakers that efforts to slow or stop Facebook’s virtual coin shouldn’t apply to bitcoin and other older digital currencies. The lobbying is expected to take on new urgency during the coming weeks as lawmakers return from recess and renew efforts to define and rein in Libra.
“What we don’t want to happen is members of Congress for the first time come in and author legislation that aims to go after Facebook and inadvertently takes out the other part of the industry,” said Kristin Smith, director of the Blockchain Assn., a trade group that represents several large cryptocurrency companies, including some also involved in Libra.
Facebook’s June announcement that it’s trying to create a new cryptocurrency to make online payments cheaper and easier met with swift pushback in Washington. Though the project is a joint effort with Visa Inc., PayPal Holdings Inc. and 25 other partners — and Facebook emphasized it had no more power over the project than the others — its prominent role drew criticism from policymakers who were already concerned about the social network’s issues with privacy and market power.
As one scandal after another has chipped away at trust in his company over the past three years, Facebook CEO Mark Zuckerberg has adopted a public pose of penitence, promising to take more responsibility for its power and put users’ privacy at the center of its products.
President Trump, Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell have all questioned Libra. Trump said in a series of posts on Twitter in July that Libra “will have little standing or dependability” and that he is “not a fan” of bitcoin and other cryptocurrencies.
Regulators such as the Securities and Exchange Commission are also paying close attention to Libra and could choose to define it as a security — a potential death knell for the project. Defenders of other cryptocurrencies want to avoid a similar fate.
Some critics of Libra have said its planned structure as a coin backed by multiple currencies and short-term government debt looks similar to that of exchange-traded funds, which typically receive SEC oversight. Although not commenting on Libra directly, SEC Chairman Jay Clayton said that if something looks and operates like an exchange-traded fund, it should be regulated like an exchange-traded fund. That could potentially cripple Libra as a digital currency by creating onerous reporting rules and requirements for protecting investors.
In the last two months, at least four new firms have registered to lobby for Facebook on cryptocurrencies and related issues. The latest registrant was John Collins of FS Vector, a lobbying and regulatory compliance firm in Washington. He’s a former executive with the cryptocurrency exchange Coinbase Inc.
U.S. lawmakers are planning legislation that would make it difficult, if not impossible, for Libra to launch. Intentionally or not, that could affect other cryptocurrency projects.
The outcome could be critical for bitcoin, ether and scores of other cryptocurrencies that the market values in the hundreds of billions of dollars. Some bitcoin advocates believe Libra could make Facebook’s more than 2 billion users more comfortable with digital currencies overall. But Facebook’s privacy and data breaches are also drawing unwelcome links.
At House and Senate committee hearings in July, lawmakers blasted Facebook executive and Libra co-creator David Marcus, criticizing the project’s initial white paper for being light on details. The lawmakers also linked Libra to other Facebook missteps from the past several years.
To distance bitcoin from Libra, the Blockchain Assn.’s Smith said the trade group met with the offices of 60 lawmakers during the two weeks before the hearings. The meetings included the staffs of most of the Senate Banking and House Financial Services committee members.
The Libra Assn., a Geneva, Switzerland-based nonprofit that is to govern the proposed cryptocurrency, has plowed ahead since the hearings even though the blowback rattled some participants, people close to the project said. Members have formed working groups to address various aspects of the project, such as privacy and governance, the people said. And engineers have submitted and reviewed more than 400 revisions to Libra’s open-source code since the week of July 14, when Marcus testified at the hearings.
Dante Disparte, the Libra Assn.’s head of policy and communications, said in a statement that the group believes “financial inclusion, regulatory compliance, and consumer protection are not competing objectives, but rather work in lockstep” with the goal of offering a simpler global currency to billions of people.
Lawmakers are plotting a response. Sen. Brian Schatz (D-Hawaii) may offer legislation that would have the effect of making currencies such as Libra illegal, according to a draft of the bill reviewed by Bloomberg. The legislation would amend a U.S. statute originally meant to prevent Americans from minting their own physical currencies. The amendment would also make it illegal for someone to create a digital currency, intended to be used as money, whose value is based on assets held in reserve.
House Financial Services Committee Chairwoman Maxine Waters (D-Los Angeles) has circulated proposed legislation that would forbid large technology platforms such as Facebook from launching cryptocurrencies. Waters said Friday that one of her committee’s priorities in the coming months will be “conducting an ongoing review” of Libra.
Sen. Mike Crapo (R-Idaho), the head of the Senate Banking Committee, has also expressed interest in more comprehensive legislation. Few policy analysts, however, expect Congress to pass major legislation before the 2020 U.S. elections.
Supporters of digital currency worry that some of the proposed legislative measures would quash more digital currencies than just Libra. Bitcoin, its backers argue, is less a currency than a store of value because its price can move up or down. But so-called stable coins, such as USD coin and tether, have a fixed price and could be hit by legislation such as Schatz’s proposal. Libra is similar to stable coins but would be backed by several different currencies and debt instruments rather than by only the U.S. dollar.
The crux of the crypto lobby’s pitch is that the bitcoin network is completely decentralized and open to anyone to join. Because no single entity controls bitcoin, regulators can’t turn to any firm or individual to enforce potential rule violations, said Jerry Brito, who runs Coin Center Inc., a nonprofit that promotes bitcoin and similar cryptocurrencies.
The Libra Assn., on the other hand, decides which organizations are allowed to manage transactions on its network. And while the Libra Assn. could make the disclosures required by securities laws, bitcoin doesn’t have a corporate parent.
“If bitcoin were classified as a security, who would make the disclosure? It’s unworkable,” Brito said. “We have to educate people on that.”
Some lawmakers have long viewed that lack of central control a problem rather than a feature. Rep. Brad Sherman (D-Northridge) told Bloomberg TV after the Libra hearings in July that he “absolutely” believes all cryptocurrencies should be illegal. Cryptocurrency “serves no function unless somebody is engaged in nefarious transactions,” Sherman said.
Brito said his goal is to stop lawmakers from conflating bitcoin and Libra. He said his organization has already seen draft legislation from lawmakers who want to contain Libra and tried to guide them to ensure they also don’t stomp on bitcoin.
Bitcoin and Libra “aren’t rivals. They’re completely different things,” Brito said.
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