It’s no secret that President Donald Trump is heavily invested in cryptocurrencies ranging from Bitcoin (BTC 0.02%) and Ethereum (ETH 5.04%) to his Official Trump (TRUMP 3.35%) meme coin on Solana, among many others. It’s also no secret that the president’s focus on cryptocurrency regulation reforms has been a major pillar of his administration’s efforts so far. But when those two things combine, political clashes are bound to happen, and at least so far, they aren’t frivolous or trivial in nature.
On May 6, a hearing on cryptocurrency legislation in the U.S. House of Representatives got contentious, with Democratic Rep. Angie Craig from Minnesota saying: “It’s legitimate to call out the self-dealing from the Trump administration related to hawking meme coins from the White House. It’s corrupt.” Rep. Maxine Waters from California also accused the president and his family of corruption, and Rep. Stephen Lynch from Massachusetts voiced similar concerns.
Are these allegations a concern? How should investors be approaching these issues?
We would usually call this bribery or money laundering
There are many aspects of the president’s cryptocurrency investments that are worth considering in terms of risk to investors; in total his crypto holdings are estimated to be worth about $2.9 billion.
The majority of that value is from the president’s stake in the Official Trump meme coin, which has a market cap of $2.7 billion currently. An estimated 80% of the supply of that coin is held by companies or individuals closely affiliated with the president or his family, which means that increases to its price disproportionately benefit them rather than other holders. Furthermore, those entities gather transaction fees with every trade, which resulted in about $100 million in proceeds during the coin’s first two weeks of trading, according to Reuters. In other words, trading the coin puts money in the president’s pocket, and he has encouraged his followers to buy it using his social media accounts.
The president is also supposedly hosting a dinner for the 220 largest holders of the coin on May 22 at one of his golf courses. Therefore, it is explicitly part of the president’s plan to enable those who buy enough of the coin to also simultaneously buy access to the president.
Per an analysis conducted by Bloomberg, more than half of the coin’s largest holders conducted their purchases on foreign cryptocurrency exchanges that are banned in the U.S., suggesting that the holders are themselves most likely foreign citizens. Thus, foreign citizens are purchasing assets that directly increase the value of the president’s portfolio while also generating money for him via trading fees. These already wealthy individuals would probably not waste their funds on buying a highly risky meme coin unless they stood to gain something far more valuable, like influence with the U.S. president.
Aside from the coin, there’s the cryptocurrency exchange called World Liberty Financial, which is run by two of the president’s sons. It holds large quantities of many different coins, including Bitcoin, Ethereum, and Solana.
Image source: Getty Images.
Recently, a company based in the United Arab Emirates called MGX announced that it would buy $2 billion of World Liberty Financial’s stablecoin offering. That means the business exchanged dollars for digital assets, increasing the value of the Trump family’s company significantly. Consider why a buyer might prefer to use World Liberty Financial’s stablecoin rather than one of the cryptocurrency industry’s other interchangeable stablecoins, many of which are vastly more liquid and have longer histories of use.
In late March, a handful of Senate Democrats on the Senate Banking, Housing, and Urban Affairs Committee and the Senate Finance and Banking Committees flagged the president’s relationship with World Liberty Financial and its stablecoins as being “extraordinary conflicts of interest and unprecedented risks to our financial system,” which makes sense given that he has a direct ability to regulate that category of assets and stands to gain from any new or adjusted rules. So it is very reasonable to be concerned about self-serving new policies or statements that might affect the value of Trump’s holdings disproportionately.
Don’t touch what’s radioactive, and don’t fear the rest
Don’t buy the president’s meme coin. It isn’t intended for you.
Remember, if the president wants to actually spend the money “invested” by foreign investors seeking influence, he’ll need to sell some of his coins. Given his ownership of the majority of the supply, he can sell a vast amount and smash the price down along the way. If that happens, you will be hit with severe losses. Keep in mind that this does not actually prevent the coin’s future use as a vehicle for other actors to “invest” once more; they can and will invest $100 million into the asset whether its price per coin is at a penny or at a dollar.
On the bright side, the president and his family don’t own nearly enough Bitcoin, Solana, or Ethereum to have much of an impact on the price with their purchases or sales. Nor is there as much of an opportunity for presidential corruption with those assets, at least not as transparently as with the official meme coin or World Liberty Financial. Don’t be discouraged from buying them because Trump holds them, even if he implements policies that affect them directly.
Alex Carchidi has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.