- Diem was a much-hyped, much-documented cryptocurrency project, with Facebook as its backer
- Regulators were never in favor of allowing a private stablecoin to become a part of the financial world
- Cryptos, which are already under stress, may feel the heat of a popular project’s failure
One of the key pillars of the cryptocurrency world is sentiments. A single tweet from a personality like Tesla’s CEO Elon Musk can trigger a wild swing in the price of a crypto asset. At least for now, more than fundamentals, sentiments decide the price trajectory of cryptos. A positive sentiment can cause a sharp rally, while a negative one may erode all profits.
In this light, the sale of the Diem stablecoin project by Meta (the parent of Facebook) might prompt a few crypto backers to re-think their bets. Let’s explore.
Sale of the Diem project
Diem was not directly owned by Facebook, but the tech giant was its primary investor. The project was initially called Libra when it started in 2019, and the launch announcement made headlines. It may not be an overstatement to say that the bull-run in Bitcoin and many other cryptos over the past couple of years was also owed in part to a tech giant’s move into the blockchain-based digital currency space.
Though the Diem Association, from the very beginning, steered clear of a highly volatile asset like BTC and focused on creating a stablecoin, the regulators were always skeptical. That a tech giant may have unwarranted control over the financial system was the primary concern.
Eventually, all the assets of the project were sold to Silvergate Capital. What will become of Diem in the near future is uncertain.
Also read: Top 5 altcoins to watch in February
Meta Ceases Diem: What Does Facebook Token’s End Mean For Crypto Space?
Facebook’s exit from the crypto market
Though Mark Zuckerberg has publicly declared his company’s intent to work in a metaverse, there is no certainty if Facebook’s metaverse will have similar underpinnings as the virtual reality-based worlds of cryptos like The Sandbox and Decentraland.
Facebook has shelved the plan to launch a blockchain-based currency, and it is this sentiment that could likely rule in the near term. Moreover, the Diem Association has clearly mentioned that the exit was owed to the negative stance of regulators toward the Diem stablecoin. News headlines are also carrying the same opinion, which might worry crypto backers, who may now want to re-think their bets.
Cryptos in 2022
This year has so far been a rough ride for most cryptocurrencies. From Bitcoin to meme tokens like Dogecoin to popular altcoins like Ether, all assets are trading below their peak prices.
Much of the fall in the crypto market’s overall market cap is being attributed to the looming rate hikes by the Fed. Riskier assets including stocks and cryptos are under stress.
But over the past few days, both cryptos and stocks have managed to pull off a limited comeback. The recovery, however, hasn’t been enough to take the global stock markets and cryptocurrencies back to their all-time high valuations.
The sale of Diem’s assets has now become a reality after much speculation. This may add downward pressure, if not immediately, in the medium term.
Data provided by CoinMarketCap.com
Also read: 5 NFT cryptos to watch in February 2022
Diem’s abandonment has a message -- regulators may never want a private currency, no matter if it is a blockchain-based digital currency, which some view as the future of global finance. This message may further dent the prospects of crypto assets.
That said, many view cryptocurrencies as assets, not currencies. These assets represent a specific project like Ether represents Ethereum’s blockchain network. The success or failure of these projects is what a lot of crypto investors believe will shape the returns on investment.
Also read: 5 key crypto predictions for February 2022