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Washington grinds Diem to a halt

January 26, 2022, 5:21 PM UTC

The expected demise of Mark Zuckerberg’s chief cryptocurrency effort reinforces a tried-and-true axiom in tech: Silicon Valley always moves faster than Washington D.C.

Bloomberg broke news Tuesday that The Diem Association, a Zuckerberg-backed crypto collective once known as Facebook initiative Libra, is on the brink of collapse as federal regulators continue to stonewall its plans. 

Citing sources familiar with the matter, Bloomberg reported that Diem is talking with investment bankers about selling off its assets, including intellectual property, and trying to find new jobs for engineers who worked on the project. The move follows wavering by the Federal Reserve over whether Diem’s cryptocurrency coin would get regulatory approval anytime in the near future, Bloomberg reported.

A Diem spokesperson told The Verge that the Bloomberg report “contained some factual errors,” but did not elaborate on which information was false.

If Diem does dissolve, it will mark the end of a rocky five-year effort by Meta—known as Facebook until a name change in October—to bring its own cryptocurrency to the market. 

Facebook originally planned a crypto-like currency called Libra that would cut out central and commercial banks, making it easier to transfer money electronically. The company and its partners—which include several top venture capital firms and ride-sharing leaders Lyft and Uber—later rebranded their effort under the Diem name, teaming with Silvergate Bank to issue a stablecoin pegged to the U.S. dollar. 

The cryptocurrency never made it to market, however, amid fierce backlash from lawmakers, the Federal Reserve, and the Securities and Exchange Commission. Opponents worried that a Facebook-backed currency could undermine the U.S. dollar, facilitate money laundering, and lead to privacy issues, among other concerns.

As he often has, Zuckerberg found himself ahead of his time. 

In October 2019 testimony before a U.S. House committee, Zuckerberg presciently argued that the financial industry “is stagnant and there is no digital financial architecture to support the innovation we need.” In the two-plus years since, demand for cryptocurrency has grown exponentially, with the global market cap jumping from about $200 billion to $1.75 trillion.

But while crypto advocates envision a financial market untethered from centralized power, the U.S.’ current legislative and regulatory framework still puts immense power over crypto in the hands of the feds. And they’re nowhere near ready to race into the void.

In fact, regulators and policymakers find themselves well behind the crypto curve. 

The Treasury Department just started to significantly tighten its oversight of crypto markets in the spring of 2021. As recently as August 2021, SEC Chairman Gary Gensler called crypto “more like the Wild West.“ The Federal Reserve just published its first major research paper on a potential central bank digital currency this month. Congress has yet to pass any comprehensive crypto-related legislation.

Maybe Libra or Diem would have worked, helping to revolutionize our relationship with money. Maybe Facebook would have been responsible stewards of a widely-used cryptocurrency. (I’ll pause for laughter.)

It looks like we’ll never know. For better or worse, we can thank the slow grind of Washington politics.

Want to send thoughts or suggestions for Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

Finally, good market news. Microsoft posted fiscal second-quarter profits of $18.8 billion on the back of strong demand for cloud-computing services and software sales, sending its stock 5% higher in Wednesday morning trading. The pandemic-fueled boost in demand pushed Microsoft’s earnings to $2.48 per share, beating analysts’ expectations of $2.31. Microsoft’s strong quarterly report, which came one week after the announcement of plans to spend $68.7 billion to acquire video game developer Activision Blizzard, offered relief to investors worried about a broad tech stock selloff to start the year.

Definitely worth the wait. The European Union’s second-highest court on Wednesday vacated a $1.2 billion fine levied against Intel in 2009, delivering a victory to the California tech company in its lengthy battle with European regulators. The EU’s General Court ruled that regulators made legal errors in their argument that Intel gave secret or partially-hidden rebates to corporate customers in exchange for them shutting out rival chipmaker AMD. The European Commission, which prosecuted the case, said it is deciding what next steps to take in response to the ruling.

Back on top. Apple regained its status as the top-selling smartphone seller in China during the fourth quarter of 2021, the first time in six years that the company outsold its top foreign competitors during a three-month stretch, Reuters reported Wednesday. The release of the iPhone 13 and a plunge in Huawei sales helped Apple secure 23% of China’s smartphone market share, its highest total to date. While Apple smartphone sales in China jumped 47% in 2021, the company still ranked third in overall sales for the year behind two brands from China’s BBK Electronics.

Investing in home. General Motors announced plans Tuesday to spend $7 billion on plants in Michigan that will manufacture electric vehicles and batteries, the company’s largest-ever investment pledge, The Detroit News reported. The decision marks the second major commitment to manufacturing in the Midwest this month, following last week’s announcement by Intel that it will put at least $20 billion into semiconductor plants in neighboring Ohio. More than half of the $7 billion will go toward retrofitting a suburban Detroit plant so that workers can produce electric trucks by 2024.

FOOD FOR THOUGHT

A losing campaign. They won’t study this one in the PR history books. The Financial Times reported Tuesday that Amazon has abandoned its laughable pay-for-positivity project, in which warehouse workers were compensated for posting upbeat social media messages counteracting criticism of the company. The three-year effort followed a litany of complaints from current and former staffers about the strict rules employed by Amazon, which closely tracks workers’ productivity while on-site. Unsurprisingly, some trolls took full advantage of the less-than-organic promotions.

From the article

Amazon quietly shut down and removed all traces of the influence campaign at the end of last year, people with direct knowledge of the decision told the Financial Times.

Senior Amazon executives, these people said, were unhappy with the scheme’s poor reach. The campaign also backfired when a number of spoof accounts gave the false impression some Amazon workers had gone rogue. Amazon declined to comment on the program’s closure.

IN CASE YOU MISSED IT

Exclusive: Why star VC Katie Haun departed Andreessen Horowitz with an audacious plan to build a $1 billion crypto investing juggernaut, by Michal Lev-Ram

Big Tech workers at their breaking point are using a new arsenal to fight back, by Jonathan Vanian

Silicon Valley’s storied VCs believe the crypto hype. Do you?, by Alyson Shontell

Chip armageddon reveals how terrifyingly fragile the U.S. supply chain actually is, by Megan Leonhardt

This 18-year-old artist started making NFTs a year ago and now his art is valued at more than $26 million, by Tristan Bove

Don’t let crypto mayhem spook retail investors, by Kunal Sawhney

The IMF wants El Salvador to choose between Bitcoin and a bailout, by Eric Martin, Michael McDonald, and Bloomberg

BEFORE YOU GO

Beware the fine print. Microsoft gaming chief Phil Spencer used some slippery language last week when he tweeted that Call of Duty would remain available on Sony PlayStation following the Xbox parent’s planned acquisition of Activision Blizzard. Now, that fuzzy commitment is coming into clearer view for gamers. Bloomberg reported Tuesday that Microsoft will release Call of Duty on PlayStation for at least the next two years. Anything after that, though, appears to be modern warfare. 

Editor’s note: Tuesday’s edition of Data Sheet listed an incorrect location for the corporate headquarters of Samsung. It is South Korea.

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