Politician-linked meme coins backfire after Libra scandal

A cryptocurrency supported by Argentinian president Javier Milei briefly surged before crashing is the latest in a series of politically endorsed meme coins facing a backlash.

The Libra cryptocurrency was launched in Argentina last Friday after US President Donald Trump and his wife released cryptocurrencies named after themselves three days before Trump's inauguration on January 20. Central African Republic's President Faustin-Archange Touadera also created an official meme coin earlier this month.

Meme coins are crypto tokens named after popular internet trends or people. While most never take off, some catch on: dog-themed Dogecoin, which soared when billionaire Elon Musk began tweeting about it in 2020, remains the eighth-biggest cryptocurrency.

While some crypto executives cheer the tokens' ability to attract new investors, others say the politician-linked coins go too far and risk harming the industry's attempts to improve its image after years of scandals.

"It's a very controversial topic," said Thomas Puech, CEO of Miami-based crypto fund INDIGO.

"You can look at it from the perspective that all publicity is good publicity," but when it comes to the Trump token, Puech said, "a lot of retail traders or crypto novices trying to surf a wave were left with a bad taste in their mouth."

Meme coins, if they take off, tend to post staggering rises in price before collapsing. Most people who buy lose money, while a small group of traders and the coin creators profit.

"Some meme coins have clearly gone too far lately, to the extent people are insider trading," Brian Armstrong, CEO of crypto exchange Coinbase, said on X without naming any coins.

After peaking above $70 within two days of its launch, Trump's coin has plunged to around $17, data from CoinGecko shows.

For the Libra coin - which Milei promoted in a post on X - most traders lost money, but 34 accounts made $124.6 million between them, according to crypto researcher Nansen. The token peaked above $4.50 on Friday but plunged more than 95% over the next few hours.

Milei later deleted the post and denied having any business link to the cryptocurrency.

A federal judge is investigating the token's launch and Milei's involvement. Argentina's stock market fell but soon recovered after investors decided it was unlikely the scandal would result in Milei's impeachment.

Rodolfo Andragnes, founder of Bitcoin Argentina NGO, a non-profit that promotes crypto, said the Libra incident was "a missed opportunity" for Argentina's cryptocurrency industry.

Crypto company Nansen agreed.

"What started with a presidential endorsement and a $4.5B valuation quickly unraveled as 'insiders' took profits, retail got burned, and key backers distanced themselves," Nansen said in a report.

"The real damage? Trust erosion and broader fatigue from yet another viral token blowing up before most people even had a chance to process what was happening."

Around $99 million worth of cryptocurrency was withdrawn from Libra's marketplace by eight digital wallets linked to the crypto token's creator, blockchain data showed.

A little-known crypto executive behind the token denied it was a 'rug-pull' scam.

Hayden Davis, whose now-unavailable LinkedIn page said he is CEO of Kelsier Ventures, described himself in a statement on the crypto company's X account on Sunday as a "launch advisor" for the token.

In an interview with crypto YouTuber Stephen Findeisen, known as "Coffeezilla," released on Monday, Davis said he was also connected with the launch of the $MELANIA meme coin, which was promoted last month by First Lady Melania Trump.

That token initially surged to as high as $13.05 before crashing to around $3.49 hours later, according to crypto data provider CoinGecko.

Experiment

Crypto executives also worry that the speculative nature of meme coin trading risks undermining the industry's bid to be taken seriously.

Their makers dispute this.

The Central African Republic's president said its token was an experiment to "unite people, support national development," and put the country on the world stage.

A website promoting the Libra token said it would "channel funding" into promoting growth in Argentina.

Trump's token triggered warnings last month from ethics advisers that it created new conflict-of-interest concerns because his administration will regulate an industry in which he has a stake through the coin.

Trump pledged to put his assets in a trust managed by his children upon entering the White House.

Meme coins' total market cap, at $68.3 billion, is down sharply from a peak in June 2024 of $127.3 billion, according to CoinMarketCap data.

"One cannot evaluate it as a rational investment as the product isn't rational," said Puech, adding that INDIGO puts a "very small" part of its funds into meme coins.

"It's a game of hot potato, and you need to make sure you're not the last one holding it; otherwise, you get your hands burnt."