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Crypto comes under fire as Zuckerberg defends Libra

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The hearing, which was officially about the impact of Libra on Financial Services and Housing, lasted for six long hours, during which politicians competed to quiz the CEO on issues as diverse as money laundering, control over user data, and the recent departures of Mastercard, Visa, PayPal and eBay.

But despite the range of questions — which included queries about the accuracy of Hollywood film The Social Network and criticisms of Zuckerberg’s haircut — Bitcoin only briefly entered the conversation.

Nevertheless, some analysts have suggested that setbacks affecting Libra have begun to ripple out across the cryptocurrency ecosystem.

'Not the best messenger'

In his opening remarks, Zuckerburg appealed to the plight of the unbanked population, claiming “there are more than a billion people around the world who don’t have access to a bank account, but they could through mobile phones if the right system existed.”

He also conceded that he "might not be the best messenger'' for such a system, allowing himself to respond to several subsequent questions by simply shirking responsibility to the absent Libra Association, which he claims will ensure Facebook has only limited control over the cryptocurrency.

These ideas weren't readily accepted by the lawmakers, who challenged Zuckerberg’s assertion that Libra was meant to help the poor and unbanked, and criticized Facebook's previous data protection failings.

Perhaps the most scathing attack came from anti-crypto congressman Brad Sherman, who didn't hesitate to blast Zuckerberg on the perceived threat of cryptocurrency to the dominance of the dollar.

“Cryptocurrency either doesn’t work, in which case investors lose a lot of money, or it does achieve its objectives, and displaces the U.S. dollar as the sole reserve currency in the world” said Sherman to Zuckerberg. “You’re going to be making powerful burglary tools and letting your business partners commit the burglary."

A proxy for crypto acceptance

As Bitcoin evangelist Anthony Pompliano pointed out on Twitter, Bitcoin is a decentralized cryptocurrency, and its fictional "CEO was unavailable" for the hearing and wouldn't be able to defend Bitcoin.

But as the hearing made clear, Libra has also benefited Bitcoin by helping to mark its place in the emerging financial landscape alongside corporate coins like Libra and JPMCoin, and government cryptocurrency projects like China's digital yuan — which Zuckerberg suggested could be a potential threat if the US doesn't allow the launch of an equivalent digital currency.

Days after the Libra hearing, China appeared to ramp up its blockchain plans and the US is at risk of being left behind.

According to analysts from SFOX exchange, Libra has become so associated with Bitcoin that it is now "acting as a proxy for the general advancement and acceptance of crypto and blockchain technologies."

This proxy has been noted by analysts, who have attributed drops in the price of bitcoin to setbacks faced by Libra.

“The fact that Libra is losing so much momentum so quickly is telling people that Bitcoin as a widely accepted currency is going to take longer than they were hoping,” said Matt Maley, equity strategist at Miller Tabak + Co.

Patrick McLain, co-founder of San Francisco-based blockchain accelerator MouseBelt, has taken this idea one step further. He told Brave New Coin that the hearing was not really about Libra, but was just a way for the government to put "the concept of cryptocurrency on trial" and draw a line in the sand that says "cryptocurrency is unwelcome in the United States."

Some senators however, have already realised that there is little governments can do to stop decentralized cryptocurrencies.

Speaking before the hearing, Senator Patrick McHenry said that Libra is only attracting attention because it has a clear command of control, and can be pinned down by those who have the "knee-jerk" reaction that the new tech should be killed.

Bitcoin, however, remains impossible to get rid of, as demonstrated by its continued presence in China.

"China tried to cut off Bitcoin and they couldn't do it. They have the great firewall of China that restricts speech and they weren't able to block bitcoin" said McHenry on CNBC Squawk Box. "What I don't understand about this whole situation, is it sounds like so many of your colleagues are more upset about Libra than they are about Bitcoin, which is completely baffling because nobody can control Bitcoin."



Kieran Smith, Khareem Sudlow