On June 18, 2019, Facebook released the white paper for the cryptocurrency Libra, instantly attracting global attention. As a social giant with a massive user base, Facebook's involvement in the cryptocurrency field undoubtedly brought significant impact and influence to the crypto space. This event has also sparked widespread discussions, one of which is a question worth pondering: from Facebook's stablecoin plan, should we discuss whether you are suitable to join the crypto space?
1. The impact of Facebook's stablecoin plan
(1) Bringing a large number of potential users to the crypto space
Facebook has a massive user base of over 2.7 billion. The launch of its stablecoin Libra is equivalent to a large-scale free promotion for cryptocurrencies like Bitcoin. Many users who were previously unaware of cryptocurrencies began to pay attention to the crypto space due to Facebook's initiative. This greatly expanded the potential user base for the crypto space, bringing new vitality and the possibility of capital inflow to the cryptocurrency market. Just like in traditional financial markets, when a new hot investment product is launched, if there is a strong platform for promotion, it will attract a large number of investors who were not originally in that field. For example, when Alipay launched Yu'ebao, it attracted a massive number of ordinary users to invest in money market funds due to Alipay's large user base, changing the landscape of the money market fund market. Facebook’s role in the crypto space is similar, bringing a large number of potential users.
(2) Enhancing the position of the crypto space in the global economic system
Before Facebook launched Libra, most countries had a rejection attitude towards cryptocurrencies. However, Facebook, as a top global technology company, partnered with dozens of leading institutions to launch a cryptocurrency, which put pressure on governments around the world. This is somewhat similar to forcing monetary reform, prompting governments to re-examine the role of cryptocurrencies in the economic system. To some extent, this has garnered more attention and discourse for the crypto space in the global economic system, making cryptocurrencies no longer merely seen as marginal and informal financial instruments, but gradually included in mainstream economic discussions.
(3) Raising reflections on the future development direction of the crypto space
Facebook's Libra is a stablecoin pegged to a basket of currencies, fundamentally different from highly volatile tokens like Bitcoin that rely solely on consensus pricing. Its emergence has sparked deep reflection on the future development direction of the crypto space. On one hand, decentralized cryptocurrencies represented by Bitcoin emphasize characteristics such as trustlessness, permissionlessness, and censorship resistance, with their development path being entirely community-driven and not controlled by any centralized organization. On the other hand, Libra is destined to be shaped within various regulatory constraints, and its credit sources include not only its own brand but also the sovereign states behind the pegged assets. This has led people to consider whether decentralized cryptocurrencies will have advantages in the future development of the crypto space or whether stablecoins like Libra, which operate within a certain regulatory framework and integrate with traditional financial credit systems, will better adapt to market demands, and whether the development of the crypto space will trend towards a diversified pattern where different types of digital currencies occupy certain market shares.
2. Characteristics and challenges of the crypto space
(1) High risk and high volatility
The price of digital currencies in the crypto space is extremely volatile. Taking Bitcoin as an example, its price often experiences significant fluctuations in a short period. Over the past few years, Bitcoin's price has seen daily fluctuations of several tens of percent multiple times. This high volatility presents opportunities for investors to achieve high returns, but it also comes with enormous risks. Compared to traditional financial markets, assets like stocks and bonds see relatively stable price fluctuations. For instance, in mature stock markets, the daily price increase or decrease of most blue-chip stocks typically remains within a few percentage points. The high volatility in the crypto space makes it easy for investors to suffer substantial losses in a short time. Without sufficient risk tolerance and psychological preparation, it is difficult to establish oneself in the crypto space.
(2) Information asymmetry and fraud risk
The information environment in the crypto space is quite complex and suffers from severe information asymmetry. Ordinary investors often find it difficult to obtain real and comprehensive information about projects. Some unscrupulous project teams may deliberately conceal project defects, exaggerate project advantages, and release false information to mislead investors. Moreover, there are many fraudulent projects in the crypto space, such as some ICOs (Initial Coin Offerings) that aim to raise funds by attracting investors to invest in projects that have not yet been realized or lack actual value, ultimately leading to investors losing all their capital. This information asymmetry and fraud risk pose a huge challenge for ordinary investors who lack professional knowledge and information channels. While there is also information asymmetry in traditional financial markets, there are relatively sound regulatory agencies and information disclosure systems to protect investors' rights. In contrast, the lack of unified and effective regulation in the crypto space exposes investors to higher information risks.
(3) Technical barriers and learning costs
Digital currencies are generated based on blockchain technology, and to truly understand the operational mechanisms of the crypto space, a certain understanding of blockchain technology is required. Blockchain technology involves specialized knowledge in multiple fields such as cryptography and distributed computing, making it quite difficult for ordinary investors to learn these technical concepts. For example, understanding the mining principles of Bitcoin and the decentralized ledger structure of blockchain requires a significant amount of time and effort to learn. Moreover, the technological developments in the crypto space are rapidly evolving, with new projects and technologies constantly emerging, requiring investors to continue learning to keep up with industry developments. If investors cannot grasp the relevant technical knowledge, it will be difficult for them to make accurate judgments about the value and prospects of projects, leading to blindfolded investments and increased investment risks.
3. Are you suitable to join the crypto space?
(1) Risk tolerance
Before considering whether to join the crypto space, you must first assess your risk tolerance. If your financial situation is relatively stable, you have some idle funds, and the loss of these funds will not significantly impact your life, then you may have a certain basis for risk tolerance. For example, if you own a self-occupied property, have a stable job income, and have a considerable amount of idle funds after daily expenses and necessary savings, you can consider investing a portion of your funds in the crypto space. However, if your funds are tight and your life depends on every income, the high risks of the crypto space may not be suitable for you. Once an investment incurs losses, it could bring severe financial pressure to your life. You can roughly understand your acceptance of risk through some risk assessment questionnaires, such as whether you can accept a short-term loss of more than 30% of your investment principal. If the answer is negative, you need to be especially cautious when entering the crypto space.
(2) Investment knowledge and experience
If you already possess certain investment knowledge and experience, whether in traditional financial markets such as stocks, funds, and bonds, or have some research in emerging investment fields, you will find it relatively easier to understand the investment logic in the crypto space and analyze projects. For example, if you understand fundamental analysis methods in stock investment and know how to assess a company’s financial status and industry competitiveness, then when analyzing crypto projects, you can draw on similar ideas to examine factors such as the strength of the project team, the project’s technological innovation capabilities, and market prospects. However, if you are a complete novice with no investment experience and lack an understanding of basic investment concepts and risks, it is advisable to first learn some foundational investment knowledge, such as asset allocation and risk management, before gradually entering the crypto space. Otherwise, it is easy to lose direction in the complex crypto environment and become a target for exploitation.
(3) Learning ability and time commitment
As mentioned earlier, the technical barriers and learning costs in the crypto space are high, and the market changes rapidly. This requires participants to possess strong learning abilities and a willingness to invest a significant amount of time in studying and researching. If you are curious about new knowledge, good at learning and researching, and have enough time to keep an eye on the dynamics of the crypto space, such as being able to set aside a few hours every day to learn new blockchain technologies, study project materials, and analyze market trends, then you are more suited to explore the crypto space. For example, some investors spend a lot of time each day reading industry reports, following blockchain technology forums, and participating in online and offline industry exchange activities to enhance their understanding of the crypto space through continuous learning. Conversely, if your learning ability is weak, or if you are busy with work and do not have enough time to invest in learning and research in the crypto space, then it may be challenging to achieve good investment results in the crypto space.
Facebook's stablecoin plan provides an important perspective for observing the cryptocurrency space. By analyzing the impact of this plan on the crypto space and gaining a deeper understanding of the characteristics and challenges of the crypto market itself, we can better consider whether we are suitable for joining the crypto space. Before making a decision, it is essential to fully assess your risk tolerance, investment knowledge and experience, as well as your learning ability and time commitment, and to make choices cautiously. After all, investing is an activity that requires careful consideration, especially in the uncertain and high-risk environment of cryptocurrencies.
