IRA Financial’s Adam Bergman discusses Facebook’s new “cryptocurrency” called Libra and how it will impact investors.
What is Libra?
Libra is the name of Facebook’s entry into the world of digital currency. While not a typical cryptocurrency, such as Bitcoin, it uses the same technology, called Blockchain. Instead, it’s considered a “stablecoin” since it’s not completely decentralized. Traditional cryptos are not backed by anything, including fiat (i.e. dollars) or any government or other agencies. However, Libra is backed by a fund, which has been funded by Facebook and 27 other corporations, such as MasterCard, Uber and Spotify. The fund is invested in bonds and government securities, which limits the volatility.
Essentially, the idea for Libra is to be the new standard in currency. Since it’s not a typical crypto, it’s value won’t see wild swings like Bitcoin. You will be able to send money all over the globe with smaller transaction fees than Western Union or similar services. With the global reach Facebook has, the hope is that anyone can send anyone else payment, whether it’s peer-to-peer or for goods and services.
You won’t need a bank account anymore and can simply use your phone and a digital wallet for all your payments. There are still a ton of hurdles to cross before Libra becomes available. Many have expressed concerns about the privacy of user info with such an enormous undertaking. Check out Libra’s white paper here to learn more.
Should You Invest in Libra?
As we talk about in virtually all of our articles, you can invest in just about anything with your retirement accounts. The most popular option is the Self-Directed IRA. So long as it’s not life insurance, a collectible or constitutes a prohibited transaction, it’s fair game. Libra certainly can be invested in using you IRA or 401(k) plan. But should you?
The upside of big gains is very slim with Libra. Since it’s a stablecoin, we won’t see huge fluctuations with the price. Therefore, the price of one Libra should remain constant. This is just the opposite of Bitcoin and other cryptocurrencies. Since it’s completely decentralized, investors decide if it gains or falls. Just look at the price of Bitcoin. Huge highs, big drops but on the rise again. You won’t see this type of action with Libra. Libra will be a currency that you will use day-to-day, but not as an investment.
We’ve barely seen the tip of the iceberg when it comes to Libra. It could revolutionize world currency as we know it. It could fade away before it even gets off the ground. Who knows? Either way, it’s probably not being added to your portfolio if you’re seeking huge profits.
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