Facebook and Bitcoin share many similarities and have had their successes and challenge these past few months. Rob Cox of Reuters’ Breaking News appearing in The New York Times online edition analyzes the WhatsApp deal from Facebook last week and the status of Bitcoin in view of the Mt. Gox withdrawal from the Bitcoin foundation this morning.
Both companies share a piece of the economic schematic in that they rely upon the demand of consumers, yet produce a service that requires demand for an intangible asset to determine its value.
Mark Zuckerberg, Facebook’s boss hatched the deal with WhatsApp’s chief executive, Jan Koum, at a German bakery where neither could pay with a Facebook share or a bitcoin.
Bitcoin is not backed by a centralized currency and has not had a regulatory guideline yet in the U.S. Homeland Security Senate Committee met last Nov. on its status.
Benjamin Lawsky, superintendent of New York's Department of Financial Services plans to prepare regulation on Bitcoin, making New York the first state in the U.S. to regulate the crypto-currency.
Last week Facebook added to its shares when it issued 182 million new shares and 46 million restricted stock units to WhatsApp’s owners, adding some 9 percent to the total of shares outstanding. This form of producing shares could undermine the Facebook share’s value, just as governments devalue their currencies by printing too much money.
Mr. Cox writes this morning that, ‘so far, Facebook shareholders are happy with their dilution. The stock price rose on the purchase of an upstart with no financial track record on which to judge its future success within Facebook. However, the acquisition makes Mr. Zuckerberg look fearful. Although Facebook’s business is robust today, it seems that it must make big, near-blind wagers on the next big thing, lest it lose its edge.’
Bitcoin had an extremely volatile year in 2013 due to FBI arrests of the Silk Road website owner and charges for money laundering and other felonies, transfer malleability problems with the crypto currency due to program issues of the algorithm of Bitcoin. MIT Technology Review listed Bitcoin as four times more volatile last year than the average stock and the Bitcoin exchange rate was 10 times more volatile than the dollar exchange with major currencies like the euro.
While Bitcoin has suffered a cut in half of its value due to the suspension of transfers by Mt. Gox exchange, Silk Road and Silk Road 2.0 it can capitalize on its value to provide the efficient buy and sell transactions without huge expense. Facebook can monetize value with the WhatsApp addition.
Which road works out for the two new business companies will depend on how well they can monetize their value?
To find out more about Facebook deal for WhatsApp, Bitcoin and Mt. Gox Monday morning news and other related articles see the list below in Author's suggestions and view the video atop this article from the WSJ today on the story behind the purchase of WhatsApp by Facebook