META Meta Platforms Inc

By Steven Russolillo 

Facebook Inc.'s struggle to convince lawmakers it can create a viable cryptocurrency is rubbing off on bitcoin.

The world's most popular cryptocurrency has fallen sharply as regulatory scrutiny of Facebook's ambitious plan to release its own digital coin, called Libra, has spoiled bitcoin's big rally this year.

The price of bitcoin recently slid to about $9,100, according to research site CoinDesk. Before bouncing back later Wednesday, it had lost almost a third of its value after trading above $13,000 a week ago, which was near its high for the year.

Enthusiasm about Facebook's plans drove much of the earlier rally. There was hope that Libra would bring widespread cryptocurrency adoption and legitimize the industry, from which bitcoin would benefit.

Then the criticism started piling in. Federal Reserve Chairman Jerome Powell last week said he had "serious concerns" about the social-media giant's plans. President Trump criticized bitcoin and said Libra would have "little standing or dependability."

During the weekend, the industry was dealt another blow when a popular cryptocurrency called Tether -- whose value is pegged to the dollar -- was briefly subject to a "fat-finger" error that caused bitcoin's price to drop sharply.

On Monday, Treasury Secretary Steven Mnuchin raised national security concerns about Libra and said people in the past had tried to use cryptocurrencies for illegal means.

Facebook faced questioning on Tuesday from U.S. senators, who said they don't trust the company to operate a global cryptocurrency. That is partly because there isn't a clear regulatory framework for digital assets. Democratic Sen. Sherrod Brown compared Facebook to a "toddler who has gotten his hands on a book of matches."

Ethan Hou, a 30-year-old cryptocurrency trader in Taiwan, said he woke up in the middle of the night to follow the Senate hearing and the market reaction. He said he sold some of his bitcoin holdings and expects more downside in the short term.

"Watching the grilling that Facebook was getting from Congress, there is a lot of negative sentiment around the market," he said. Mr. Hou said he is broadly optimistic about the future of bitcoin and other cryptocurrencies, given Facebook managed to get large companies including Mastercard Inc. and PayPal Holdings Inc. to back its plans for Libra.

Others remain skeptical of the benefits Libra could bring for users.

"What legitimate corporate or consumer global payments need exists that a Facebook-led crypto consortium can uniquely fill? In our view, none," Morgan Stanley analysts said in a note on Tuesday.

Facebook executive David Marcus told the Senate Banking Committee on Tuesday plans for Libra won't move forward until the company has "fully addressed regulatory concerns and received appropriate approvals." The company will face more questioning from the House Financial Services Committee on Wednesday.

Write to Steven Russolillo at steven.russolillo@wsj.com

(END) Dow Jones Newswires

July 17, 2019 13:25 ET (17:25 GMT)

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