No stranger to controversy, Facebook (NASDAQ:FB) has garnered some less-than-stellar headlines. This time, though, it wasn’t the company’s take on censorship that put it in hot water. Instead, the focus has been on Diem, the social media giant’s cryptocurrency formerly known as Libra. But are these latest rumblings enough to dissuade investors from Facebook stock?
On the surface, the picture doesn’t look great. Originally designed as a blockchain reward token backed by a basket of currencies and bonds, Diem will now operate as a single coin backed by the dollar. But in order to achieve Facebook’s ambition of providing an alternative currency, the company is seeking regulatory approval.
Not surprisingly, Facebook now has an uphill battle to fight.
Resistance Against Diem and Facebook Stock
Earlier this week, Germany’s finance minister, Olaf Scholz, blasted Diem by saying, “A wolf in sheep’s clothing is still a wolf.” Further, Scholz declared, “It is clear to me that Germany and Europe cannot and will not accept its entry into the market while the regulatory risks are not adequately addressed.”
But what do Scholz’s comments mean for the cryptocurrency? The Diem Association is based in Switzerland and is also seeking approval from the Swiss Financial Market Supervisory Authority. So, that European influence means that its proponents must play nice with regional heavyweights like Germany.
Additionally, while Facebook is levered to the core social media business, it also needs expansion and disruption for its long-term success. As Twitter (NYSE:TWTR) and Snap (NYSE:SNAP) have demonstrated, FB is not completely impermeable. Therefore, it’s in the company’s best interest to forge potential new revenue streams.
With Diem, Facebook could funnel burgeoning demand for alternative financial interest toward its broad corporate umbrella. Theoretically, this should be a big boost for Facebook stock — so long as Diem can get the nods of approval it needs.
That’s why regulatory resistance is a newsworthy setback. Still, FB is poised to make a breakthrough.
FB Is an Inevitable Crypto Play
Admittedly, Scholz’s harsh words aren’t exactly endearing for owners of Facebook stock. Plus, I’m sure many of his colleagues feel the same way. But it’s not just about regulatory concerns, which is really a copout. Basically, cryptocurrencies like Diem represent an affront to the old way of doing things.
Sure, Diem is unlike true virtual currencies — as opposed to most cryptos, the “FB token” is controlled by a centralized authority. On top of that, Diem is also backed by a fiat currency, a concept that’s anathema to most altcoin projects. However, the rub is that — aside from these key differences — all virtual currencies trade all day and all year. This kind of free-for-all scares stuffy regulators.
After all, there is an advantage to operating a traditional stock market. For one, you have a defined schedule. Moreover, stock exchanges have backup plans in case something hits the fan.
But there’s a downside to so much centralization — it introduces complex cost structures into the system. Long story short, this complexity favors those in the know, leaving the average retail investor in the dark.
Hence — between 1999 and 2007 — there was a measurably significant correlation between the S&P 500 index and household stock ownership. As the market rose, so did stock ownership, from 58% to 65%. But the period between 2009 through this year to date saw no significant correlation. In this framework, the S&P kept rising to record levels while equity ownership went flat at 55%.
Click to Enlarge
While there are many variables at play here, one possible contributor to the decline in stock ownership is the lack of practical access. When the market is only open in a certain time window and never on holidays or weekends, this boxes out many potential investors.
Conversely, Diem provides a new way forward with a convenience that we’ve come to expect from our digitalized society. Therefore, as a long-term crypto play, I view Facebook stock in a positive, innovative light.
True Financial Democratization
So, if the regulators that pay lip service to social justice really want to bring about change, cryptocurrencies may be one of the best solutions. For instance, while more than half of Americans currently own stocks, an overwhelming majority are white.
But the narrative flips when you enter the blockchain. This year, we saw the biggest spike in crypto interest come from young people in Oceania, followed by Africa. Additionally, women demonstrated significant interest in crypto, as opposed to the male-dominated stock market. Finally, communities of color are also exploring alternative cryptocurrencies at higher rates.
All around, then, virtual currencies seem to facilitate democratization. And that means — for once — we can look at Facebook as a representative of positive change. Investors should consider that next time they think about a position in Facebook stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
