Just a couple of days before his inauguration, President Trump took a bold step into the world of cryptocurrency by launching a coin named Official Trump (TRUMP). This new digital currency quickly captured the attention of investors, soaring to a market value of around $14 billion. Yet, the excitement was short-lived.
Once the inauguration festivities concluded, data from the blockchain revealed some startling activity. Several major TRUMP coin holders began unloading millions of dollars worth of the currency, triggering a selloff that sliced its market cap down to approximately $2 billion.
On January 22, the Senate Banking Committee reached out to the Treasury Department with a letter expressing concern over the ethical implications of Trump’s foray into cryptocurrency. This concern was mirrored by finance journalist Jacob Silverman, who criticized the coin as a “classic meme coin pump-and-dump scheme.”
So, what exactly is a pump-and-dump? And can we categorize the TRUMP coin under this dubious distinction?
A pump-and-dump scheme is essentially an orchestrated effort where a group drives up the price of a low-value asset—be it a meme coin or a penny stock—by spreading hype through social media or other mass communication. The goal is to whip up a buying frenzy. Once a fresh batch of unwitting investors jumps on board, those orchestrating the scheme sell off their substantial holdings at these inflated prices.
This sudden unloading often catches outsider investors by surprise, causing the asset’s value to plummet. These investors then find themselves stuck with an asset worth far less than what they paid for it, or they end up selling it at a significant loss.
Today, such schemes have found fertile ground in the largely unregulated world of cryptocurrency, earning the nickname "rug pulls." However, these tactics are not new; historically, they plagued the stock market, especially with penny stocks. The infamous activities of Jordan Belfort, dramatized in the movie The Wolf of Wall Street, are a notable example—featuring aggressive cold-calling sales tactics and the eventual crackdown by regulatory authorities, which led to his conviction.
As the cryptocurrency market grows, becoming a victim of such schemes is a real risk. Alexander Blume, CEO of Two Prime, a digital asset-focused registered investment advisor, advises enthusiasts to be cautious. In a recent conversation, he emphasized that sticking to well-established cryptocurrencies, like Bitcoin, is a safer bet. With its widespread acceptance and deep market roots, Bitcoin remains the most secure option against these schemes.
Blume further explained that if you’re considering trading in trendy cryptocurrencies, it’s essential to recognize the gamble involved. Opt for coins with longer histories and bigger market caps, often ranking in the top 25 on popular platforms like CoinMarketCap. He warns that signs of a potential pump-and-dump include a small group holding large portions of the currency, a lack of concrete developmental plans, and appearances on low-quality exchanges. To mitigate risk, investors should focus on reputable centralized exchanges such as Coinbase, Gemini, Kraken, or Crypto.com.
Moreover, Blume cautions investors to stay alert if the promoters of a token use excessive tech jargon to sound credible, as it could be a smokescreen for a scam.
As for the TRUMP coin, does it fit the bill of a pump-and-dump? Not exactly. True, its story shares some similarities. The coin witnessed promotion through social media, courtesy of a post by the incoming president on his X (formerly Twitter) account, which aligns with the "pump" part.
Following this promotion, several key investors disposed of significant holdings in a short timeframe, resembling the "dump" aspect. However, the hallmark of a pump-and-dump is when the main promoter—often the largest holder—offloads their stake. In this instance, President Trump and his organization, which holds 80% of TRUMP coin, have not sold their position.
This makes the situation complex and casts doubt on referring to the TRUMP coin’s rise and fall as a typical meme coin pump and dump, as Silverman suggested. Nonetheless, the high concentration of ownership and the absence of future plans for the project are concerning. Should the Trump Organization decide to sell its stake abruptly, the conditions could align more closely with a pump-and-dump.
Presently, despite the dip from its peak, TRUMP coin’s value remains above its initial offering price. The Trump Organization’s holdings are under a two-year lockup, preventing any sale during this period. The coin’s launch is described by CIC Digital, a Trump Organization affiliate, as an "expression of support" rather than an investment opportunity.
At the time of writing, neither the author nor the editor held positions in the investments discussed.
