Meme coins, as mentioned above, are highly volatile. The saga of the $TRUMP token is exceptional even by those extremely high standards. This tale of success only highlights the staggering advances for the lucky. At the same time, it hides large secretariat-wide losses for most and inflames debate, stoked by political ties. While 58 investors made millionaires, a jaw-dropping 764,000 other investors watched their investment go up in smoke. In Pulling Token, Nicole Tsong investigates what drives such an enormous gap. It lays out important precautionary guidance for how to walk through the high-risk environment of crypto assets.

The Rise and Fall (and Rise?) of $TRUMP

The $TRUMP meme coin saw a huge explosion in popularity and activity, just as President Trump has been becoming more active in the crypto ecosystem. That was until Trump’s value token skyrocketed after announcing plans to host private dinners with the top 10 investors. This, in turn, provided even more speculation and brought a new class of investors looking to profit on the coin’s momentum. Within days of it being launched, the market cap of $TRUMP reached upwards of almost $6 billion. In fact, it just kept blowing past that number, hitting over $27 billion before the day was half over!

This rapid appreciation had its critics from the beginning. Soon, concerns arose that token ownership had become highly concentrated. According to these reports, about 80% of the entire $TRUMP supply already is held by the Trump Organization and its affiliates. Under this unprecedented level of control, alarms were raised regarding potential market manipulation and insider trading. Ethics experts, government watchdogs, and critics alike were outraged when $TRUMP was first adopted early on and proceeded to do well! Media outlets and online commenters alike went further, with some calling it a “pump and dump” scheme.

The financial implications are staggering. Currently, analysts estimate that Trump and his associated business entities have raked in more than $320 million in fees. This revenue is generated by the $TRUMP meme coin. Wallets allegedly linked to the creators of the project have apparently raked in over $324 million in trading fees since January. Thousands of innocent investors have lost billions of dollars. This shocking loss underscores the permanent danger of pouring money into highly speculative assets.

Factors Contributing to the Disparity

Several factors contributed to the extreme disparity in outcomes for $TRUMP investors:

  • Early Adoption: As with many cryptocurrencies, early adopters of $TRUMP were positioned to reap the greatest rewards. These investors were able to acquire tokens at a low price and benefit from the subsequent surge in value.

  • Market Manipulation: The concentration of token ownership in the hands of a few entities raises concerns about potential market manipulation. With a significant portion of the supply controlled by insiders, it becomes easier to artificially inflate the price and then sell off holdings for a profit, leaving later investors holding the bag.

  • Insider Control of Token Supply: The fact that roughly 80% of the $TRUMP token supply is controlled by the Trump Organization and its affiliates is a major red flag. This level of control allows insiders to exert significant influence over the market and potentially profit at the expense of other investors.

  • Political Capitalization: The association with a prominent political figure like Donald Trump undoubtedly played a role in the coin's initial surge in popularity. Investors may have been drawn to the token based on their support for Trump or a belief that his involvement would lend legitimacy to the project.

Cautionary Advice and Due Diligence

The $TRUMP saga underscores the risks of investing in meme coins. It can and should serve as a cautionary tale about the dangers associated with such high-risk crypto assets. As always, before you decide to invest in any cryptocurrency, it’s important to do your own research. Here are some steps investors can take to protect themselves:

  1. Understand the Project: Research the project's goals, team, and technology. Is there a clear use case for the token, or is it purely speculative?
  2. Assess the Tokenomics: Examine the token distribution, supply, and vesting schedule. Is the token supply concentrated in the hands of a few individuals or entities?
  3. Evaluate the Community: Look at the project's community and social media presence. Is there genuine interest and support, or is it primarily driven by hype?
  4. Consider the Risks: Be aware of the potential risks involved, including market volatility, scams, and regulatory uncertainty.

Investors should consider more advanced due diligence measures, such as:

  • Third-party audits and reviews: Seek independent assessments of the crypto asset's technical, financial, and legal standing. This can provide valuable insights into the project's legitimacy and potential vulnerabilities.
  • Know Your Customer (KYC) risk assessments: Conduct thorough risk assessments to identify and evaluate liabilities associated with specific customers and activities. This is particularly important for projects with ties to politically sensitive figures or organizations.
  • Enhanced Due Diligence (EDD): Assess and mitigate risks of money laundering and terrorist financing in high-risk sectors like cryptocurrency.
  • Risk-based approach: Prioritize liabilities associated with specific customers or operations.
  • Six risk pillars: Consider reputational and strategic, technical, financial, legal and compliance, cybersecurity, and auditability risks.

The saga of $TRUMP is a timely reminder that all crypto investments should be treated with suspicion and care. The lure of extreme returns beckons. With these sorts of assets, it’s crucial to realize just how speculative they are and the risks that should be taken into consideration. As with any opportunity, be sure to do your own due diligence, know the risks associated with it, and don’t invest anything you’re not willing to lose. The pre-inauguration launch, 80% token concentration, and estimated millions in fees suggest a speculative tool exploiting political capital rather than a sustainable digital asset.