Chip Somodevilla/Bloomberg
President Donald Trump ventured into the crypto pool with a new currency issued shortly before his inauguration. Like all coins, it is subject to volatility and uncertainty. Here’s what bankers need to know, to help inform their decisions and advise their clients.
It’s a meme coin
Featuring an image of him raising his coins in the air after the failed assassination attempt over the summer, the new coins named Trump and Melania fall into the bucket commonly called “coins,” meaning their value is tied to their shapes, personalities, and brand.
Rob Krugman said, “The way I describe it is collectors’ items. This is where people get involved: They’re excited about the hype — the president has just been elected and they want to get involved in any way they can.” Chief Digital Officer at Broadridge.
“One I think you come back to often is DogeCoin, another meme coin, which has grown in value largely with celebrities, in this case, Elon Musk,” Krugman said.
The current project is not backed by anything tangible, apart from the celebrity factor, which means it has no inherent transactional or economic value. Coins are sold on the Solana Blockchain network via Moonshot, an app that allows people to purchase Meme coins in a variety of ways from the usual ways of online shopping: Apple Pay, Credit and Debit, PayPal, Venmo, and using other cryptocurrencies.
Seoyoung Kim, an associate professor of finance at USC, likened them to penny babies.
“It’s kind of like, ‘Where did the value of kids come from? Your Meme coins are like your digital kids,'” Kim said, “and they may be popular, or they may not.” “
The coin’s website states that it is “the only official Trump meme, for President Donald Trump.” The fine print further explains:
“Trump memes are intended to serve as an expression of support and communication of the ideals and beliefs embodied by the “$Trump” symbol and associated artwork, and are not intended to be, or be the subject of, an investment opportunity, investment contract, or security of any kind.”
Melania Coin provides a similar disclaimer, stating that the coins are “digital coins” that are not intended to be, or be the subject of, an investment, investment contract, or security of any kind. “
Think of these coins like concert tickets
Kim used concert tickets as an analogy for why someone might participate.
“There are only two legitimate reasons to buy a concert ticket: You really, really like the artist and plan to use your concert ticket to get into that performance, or you don’t care about the artist but think others will care, and you think you’ll sell that for a higher price.” Later,” Kim said.
“But it would be completely ridiculous if you said you’re buying a concert ticket because you think Lady Gaga is innovative and wants to share the profit,” she said.
Trump and Melania coins are similar in that people may buy them to show support for the president and they believe in him or because they believe others will pay more for them, but not because they expect to receive profits from the Trump organization’s actions.
Currently, CIC Digital LLC, a subsidiary of the Trump Organization, and a related company managing the coin launch, Fight Fight LLC, own about 80% of the tokens. The latter company was recently merged and its ownership is unclear. In April, miners will be able to start selling their share of the coins, which will continue to be unlocked over the next three years with 200 million tokens available immediately and eventually at the end of the three-year period, and 1 billion in circulation.
There is potential future value
It’s unlikely, but possible that coins like ether will evolve into a form of payment in places that accept them. Kim noted that Crypto has the potential to shift denominations over time.
“ETH has always been a utility token for transacting with Ethereum, but it has become so popular that people are also accepting it as a currency, as a means of exchange. So it has the potential to evolve,” she said.
Krugman agreed and likened it to Dogecoin.
“I see comparisons to DogeCoin,” Krugman said. “DogeCoin had the 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 associated with that currency for things like payments, and now there’s a large community of developers that are basically building on top of it and extending the underlying protocol so that people can Of doing interesting things with her.”
The coin reached a market cap of over $10 billion on its first day, making it, at the time, the second-largest meme coin by market capitalization, behind only DogeCoin. As of Monday, the market cap has fallen to around $5.3 billion.
“There’s a community of share holders. 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.
Customers should go into it with educated and clear eyes
Crypto can be extremely volatile – something already seen in Trump’s Trump. The coin was put on the market late at night on Friday before his inauguration a week ago. The value rose quickly, shooting from $6 to $75 in 36 hours, an increase of more than 1,100%. By last Tuesday morning, three and a half days later, it had fallen below $40.
The coin is trading at around $27 as of Monday morning.
“The crypto mindset is still looking for lottery-like payouts,” Kim said. “And a lottery-like office is only possible if you’re focused on one thing because if you’re broadly diversified, you’re not just cutting out the downside, you’re cutting out the extreme upside as well. For example, you just picked Tesla and everything is going well, and then You now have a lottery-like aspect where if you diversify wisely, you don’t have the same kind of upside.”
A disclaimer on the President’s Coin website warns buyers that the price “may be highly volatile and you may experience significant losses in connection with the sale or other disposition of Trump memes.”
Most importantly, bankers should advise their clients to know what currencies are. Because MEME coins are associated with viruses and cultural popularity, and measures are difficult to quantify, buyers cannot rely on traditional investor methods such as reviewing balance sheets and income statements, or looking at trade flow and GDP growth as currency traders do.
“How can you make sure that people who buy it actually know what they’re buying? If it’s a collectible, let’s make it clear to them. It’s a meme coin; there’s no substantive use case associated with it now but that doesn’t mean there won’t be a use case associated with it in the future.” “.
Broadridge, where Krugman serves as chief digital officer, has released a product that brings together all relevant information about coins in one place as a solution to this problem.
“How can you make sure that people participating in the market have an understanding of what these assets are?” Customers can make decisions about what to buy from there, Krugman said, adding. “No one is suggesting that people shouldn’t be able to buy or sell these things, but how do you make sure that people have access to the right information to make that informed decision?”
More regulation may bring clarity, noted Jonathan Ziegler, managing director at Baker Tilly.
“Any potential buyer needs to make sure they really understand what they are getting into, and this is where being clearer and clearer can help,” Ziegler said. “What are the rules around marketing these? What are the rules around what disclosures need to be made to investors about the potential rents and risks and things they need to understand?”
“Regulation, I think, will help increase investor confidence, and then it just kind of flows,” Zeigler said. “The big game changer last year was the ETF approval of Bitcoin and Ethereum ETFs, which provided more investor confidence because these are now regulated like any other ETFs.”
What are the signs of this organization?
The launch of the coin is the latest sign that this is a crypto-friendly administration.
Even before taking office, Trump pledged to “be the crypto president” at a fundraiser and, over the summer, announced at a Bitcoin conference in Nashville, that he would make the United States “the crypto capital of the planet.”
Trump
Zeigler said the crypto community took these steps to be positive signs.
“The crypto community thinks it’s good, because, it’s not saying this was intentional, but the way regulations have been suppressed, or enforcement actions have been done previously, it has created much higher barriers to entry, which, of course, can limit innovation.
“Trump has said, publicly, effectively, that he wants the United States to be the crypto capital of the world. He wants innovation to happen here; he wants companies to be dedicated and registered here; and to incentivize them to do this, there have to be regulatory goals.” Clear.” “Once people know the rules of the game, they will be more willing to make a business decision, ‘Do we want to enter this space?’”
The sentiment has also been reflected in the market: Before Monday’s decline, Bitcoin had risen more than 50% since the November election. The cryptocurrency hit a record peak of $109,241 shortly before Trump’s inauguration.
