President Donald Trump ventured into the crypto-sphere with a new coin released shortly before his inauguration. Like all alt coins, it is subject to volatility and uncertainty. Here’s what bankers need to know, to aid their own decision-making and to advise their customers.
It's a meme coin
Featuring the now-iconic image of Trump raising his fist in the air following the failed assassination attempt over the summer, the new coins named TRUMP and MELANIA fall into the bucket typically called "meme coins," meaning their value is tied to their personas and brand.
"The way I would describe it is they're collectors' items. That's where people get involved: They get excited about the hype — the president has just been elected and they want to participate in any way they can," said Rob Krugman, chief digital officer at Broadridge.
"One that I think you often come back to is dogecoin, another meme coin, and that grew in value largely associated with celebrity, in that case, Elon Musk," Krugman said.
The current venture is not backed by anything tangible, aside from the celebrity factor, meaning it has no inherent transactional or economic value. The coins are being sold on the Solana blockchain network via Moonshot, an app that lets people buy meme coins in a variety of ways typical to online shopping: Apple Pay, credit and debit card, Paypal, Venmo and using other cryptocurrencies.
Seoyoung Kim, an associate professor of finance at Santa Clara University's Leavey School of Business, likened them to Beanie Babies.
"This is sort of like, where did the value of Beanie Babies come from? The meme coins are like your digital Beanie Babies," Kim said, and they might sustain popularity, or they might not.
The coin's website states it is "the only Official Trump Meme, by President Donald J. Trump." The fine print further clarifies:
"Trump Memes are intended to function as an expression of support for, and engagement with, the ideals and beliefs embodied by the symbol '$TRUMP' and the associated artwork, and are not intended to be, or to be the subject of, an investment opportunity, investment contract, or security of any type."
The MELANIA coin provides a similar disclaimer, noting the coins are "digital collectables" that "are not intended to be, or to be the subject of, an investment opportunity, investment contract or security of any type."
Think of these coins like concert tickets
Kim used concert tickets as an analogy for why someone may get involved.
"There's only two legitimate reasons to buy a concert ticket: You really, really like the artist and you plan to use your concert ticket to gain entry into that performance, or you don't care about the artist but you think that other people will care, and you think you'll sell that to get at a higher price later," Kim said.
"But it would be totally ridiculous if you said that you're buying a concert ticket because you think Lady Gaga is innovative and you want profit participation," she said.
The TRUMP and MELANIA coins are similar in that people may purchase them to show support for the president and they believe in him or because they believe other people will pay more for them down the line, but not because they expect to receive dividends from the Trump Organization's businesses.
Currently, CIC Digital LLC, an affiliate of the Trump Organization, and a related firm managing the coin's launch, Fight Fight Fight LLC, own about 80% of the tokens. The latter firm only recently incorporated and its ownership is unclear. In April, holders will be able to begin to sell off their share of the coins, which will continue to unlock over the next three years with 200 million tokens available immediately and ultimately at the end of the three-year period, 1 billion in circulation.
There's potential future value
It's unlikely, but it's possible that the coins could evolve like ether into a method of payment at places that accept it. Kim noted crypto has the ability to shift categories over time.
"ETH was always a utility token to transact on ethereum, but it became so popular that people also accept it as currency, as a medium of exchange. So it has the ability to evolve," she said.
Krugman agreed and likened it to dogecoin.
"I see comparisons to dogecoin," Krugman said. "Dogecoin had a hype factor associated when it first came out and one of the interesting things that happened is as a result of that interest, you started to see utility be associated with that coin for things like payments, and now there's a large community of developers that are essentially building on top of it and extending the underlying protocol so that people can do interesting things with it."
The coin reached a market capitalization of over $10 billion on its first day, making it at that time the second-largest meme coin by market capitalization, behind only dogecoin. As of Monday, the market cap has dropped to about $5.3 billion.
"There's a community of holders that are participating. The question becomes, where does that go? Does that become a utility use case? Is there a payment use case? Or is there another type of use case where people start building on top of it?" Krugman said.
Clients should wade in educated and clear-eyed
Crypto can be extremely volatile – something already seen in the TRUMP rollout. The coin was put to market late at night on the Friday before his inauguration a week ago. It quickly soared in value, shooting from $6 to $75 in 36 hours, up more than 1100%. By last Tuesday morning, three and a half days later, it fell to below $40.
The coin is trading at around $27 as of Monday morning.
"Crypto mentality is still looking for a lottery-like payout," Kim said. "And the lottery-like payout is only possible if you concentrate in one thing because if you're widely diversified, you're not just cutting off your downside, you're cutting off your extreme upside as well. If, for example, you had just picked Tesla and everything is going well, then you now have a lottery-like upside where if you had been wisely diversified, you wouldn't have the same kind of upside."
A disclaimer on the website offering the president's coin warns buyers the price "may be extremely volatile and you may experience substantial losses in connection with a sale or other disposition of Trump Memes."
Most importantly, bankers should advise their clients to know what the coins are. Because the meme coins are tied to virality and cultural popularity, measures that are difficult to quantify, buyers can't rely on traditional investor methods like reviewing balance sheets and income statements, or looking at trade flow and GDP growth as currency traders do.
"How do you make sure that the people who are buying it actually know what they're buying? If it is a collectible, let's make that clear to them. It's a meme coin; there's not an intrinsic use case associated with it right now, but that doesn't mean there will not be a use case associated with it in the future," Krugman said.
Broadridge, where Krugman serves as chief digital officer, recently released a product that aggregates all relevant information about crypto coins in one place as a solution to the issue.
"How do you ensure that people participating in the market have an understanding of what these assets are?" Krugman said, adding clients can then make decisions on what to buy from there. "No one's suggesting that people should not be able to buy or sell these things, but how do you make sure that people have access to the appropriate information to make that informed decision?"
Jonathan Zeigler, managing principal at Baker Tilly, noted further regulation may bring clarity.
"Any potential buyer needs to make sure they really understand what they're getting into, and that's where further and more clear regulation could help," Zeigler said. "What are the rules around marketing these? What are the rules around what disclosures need to be made to investors about the rents and the potential risks and things they need to understand?"
"Regulation, I think, will help increase investor confidence, and then just more kind of flows into it," Zeigler said. "A big game changer last year was the approval of the spot ETFs for bitcoin and ethereum, that provided more investor confidence because now these are regulated just like any other ETF."
What this signals for regulation
The coin's launch is the latest sign that this is a crypto-friendly administration.
Even before taking office, Trump vowed to "be the crypto president" at a campaign fundraiser, and over the summer declared at a bitcoin conference in Nashville he would make the United States the "crypto capital of the planet."
Trump
Zeigler said the crypto community has taken these steps to be positive signs.
"The crypto community believes it is good, because, not saying this was intentional, but the way that the regulations were being put out, or the enforcement actions were done previously, it created much higher barriers to entry, which, of course, could limit innovation. You had entities that were moving to offshore jurisdictions, because it was unclear what the regulatory environment was here," Zeigler said.
"Trump has said, publicly, effectively, he wants the United States to be the crypto capital of the world. He wants the innovation to happen here; he wants the companies to be domiciled and registered here; and in order to incentivize them to do that, there has to be clear regulatory goals," Zeigler said. "Once people know the rules of the game, they'll be more willing to make a business decision asking, do we want to enter this space."
The sentiment has also been reflected in the market: Before Monday's drop, bitcoin was up more than 50% since the November election. The cryptocurrency hit a record peak of $109,241 shortly before Trump's inauguration ceremony.
