2018 was the year when the cryptocurrency boom has lost the turn. After soaring in 2017, digital currencies like Bitcoin have been canceled, even if prices are still much higher than a couple of years ago.
The implosion has caused chaos on some companies that have had a boost from the increase in interest in digital currencies, but this does not prevent others from investing in crypto-activity and the underlying blockchain technology. log into Facebook (NASDAQ: FB), which is reportedly working on blockchain technology – a stablecoin, to be precise – that will be integrated into its WhatsApp messaging service to facilitate money transfers in India.
What is a stablecoin?
A stablecoin is a type of cryptocurrency that is anchored to the value of a country's currency; in the case of the Facebook project, that would be the US dollar. Pegging the currency to the dollar helps to minimize price volatility, particularly the type that is plagued by Bitcoin, as shown in the graph above. This could make the stablecoin useful tools in e-commerce and in money transfers.
Stablecoins could be complicated in the real world, though. They would probably be labeled as a resource against a currency – which opens up adequate regulatory compliance – and it would be necessary to hold a reserve balance of dollars to support them. However, Facebook is not the only company that has expressed interest in stablecoin.
The second Japanese bank, Mizuho Financial Group (NYSE: MFG)is planning to launch a Yen-based stablecoin for the use of digital transactions in 2019. The bank plans to monetize the currency by charging a commission to retail stores for its use – although this fee is lower than normal commissions credit card and payment settlements would be much faster.
The alleged interest of Facebook to bring a stablecoin to India could follow a model similar to that of Mizuho, and the attention to the country makes sense. India has over 460 million Internet users, making it second to the world behind China. Despite the government's "de-monetization" drive to promote a cashless economy, most businesses in India are still conducted on a monetary basis. Facebook could help accelerate the transition to cashless online transactions and transfers with its stablecoin project – a huge opportunity given India's population of over 1.3 billion.
Other technology and e-commerce companies are also piling up in India. WalmartParticipation in the largest Indian e-commerce site Flipkart e Berkshire HathawayThe investment in the competitor of FlipKart Paytm are two examples. The move of Facebook could be a unique way for the company to bet on the development of the consumer and the digital economy of the country without going into the retail world itself.
What's for Facebook?
With the slowdown in the growth of the number of Facebook users and the increase in regulatory control, the company has defined the 2018 and 2019 "investment years". Expenses are expected to increase faster than revenues as they company builds new tools and services to connect the global community. For long-term investors, it's not a bad thing.
Facebook has a large user base. The company says that over 2 billion people use at least one of its apps (Facebook, WhatsApp, Instagram and Messenger). The king of social networking has monetized his platform through advertising, but the nascent digital payments industry could be a way to diversify revenue and provide a future source of growth.
To be clear, Facebook's stablecoin project is still underway and no release dates or specifications have been released on how it would work. Nevertheless it is an exciting development for cryptocurrency believers and for Facebook shareholders. With a massive global user base on tap, Stablecoin could make the social network an interesting way to bet on blockchain technology.
Nicholas Rossolillo and his clients own shares of Berkshire Hathaway (B shares) and Facebook. Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Facebook. Motley Fool has a disclosure policy.