On February 21 (Reuters) - A cryptocurrency that initially surged due to the support of Argentine President Javier Milei before sharply dropping is the most recent in a series of politically endorsed meme coins facing criticism.
The Libra cryptocurrency was introduced in Argentina last Friday, following the launch of cryptocurrencies named after U.S. President Donald Trump and his wife three days prior to Trump's inauguration on January 20. Meanwhile, President Faustin-Archange Touadera of the Central African Republic also introduced an official meme coin earlier this month.
Meme coins are crypto tokens named after popular internet trends or individuals. Although many do not gain traction, some become popular, like Dogecoin, a dog-themed token that saw a substantial increase after billionaire Elon Musk started tweeting about it in 2020.
While some cryptocurrency executives applaud the tokens' ability to attract new investors, others believe that politician-linked coins cross a line and could potentially damage the industry's efforts to enhance its reputation following years of scandals.
"There are mixed opinions," stated Thomas Puech, CEO of Miami-based crypto fund INDIGO. Regarding the Trump token, Puech mentioned that "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 successful, often experience significant price surges before crashing. The majority of buyers incur losses, while a small number of traders and coin creators profit.
"Some meme coins have gone too far recently, with allegations of insider trading," noted Brian Armstrong, CEO of crypto exchange Coinbase.
Following its launch, Trump's coin peaked above $70 within two days, but subsequently dropped to around $17, according to data from CoinGecko.
For the Libra coin, which Milei endorsed in a post on X, traders mostly lost money, but 34 accounts collectively made $124.6 million, as reported by crypto researchers Nansen. The token initially climbed above $4.50 on Friday, only to plummet more than 95% in the ensuing hours.
Milei later removed the post and denied any connection to the cryptocurrency.
A federal judge is probing the token's launch and Milei's involvement. Despite a brief dip, Argentina's stock market rebounded as investors deemed impeachment of Milei unlikely.
Rodolfo Andragnes, founder of Bitcoin Argentina NGO, labeled the Libra incident as "a missed opportunity" for Argentina's cryptocurrency sector.
Crypto company Nansen concurred, stating that what began with a presidential endorsement and a $4.5B valuation quickly deteriorated into profit-taking by 'insiders,' retail investors getting burned, and key supporters distancing themselves.
The broader concern centers on trust erosion and general weariness stemming from yet another viral token collapse before many could fully comprehend the situation.
Approximately of cryptocurrency was withdrawn from the Libra marketplace via eight digital wallets linked to the token's creator, as shown by blockchain data.
An obscure cryptocurrency executive associated with the token dismissed claims of a 'rug-pull' scam.
Hayden Davis, listed as CEO of Kelsier Ventures, although his LinkedIn page is no longer available, identified himself as a "launch advisor" for the token in a statement on the company's X account.
In an interview with crypto YouTuber Stephen Findeisen, known as "Coffeezilla," Davis mentioned his involvement with the launch of the $MELANIA meme coin, promoted by Melania Trump last month.
Despite concerns from crypto executives that meme coin trading's speculative nature undermines the industry's credibility, their creators defend them.
The president of the Central African Republic justified their token as an experiment to "unite people, support national development," and showcase the country on the global stage.
The website promoting the Libra token stated it would "channel funding" to stimulate growth in Argentina.
Ethics advisers issued warnings last month about Trump's token, given his administration's regulatory oversight of an industry in which he holds a stake via the coin.
Meme coins' total market cap, currently at $68.3 billion, has declined significantly from its peak of $127.3 billion in June 2024, based on CoinMarketCap data.
Puech emphasized that INDIGO allocates only a "very small" portion of its funds to meme coins, characterizing their investment as a risky game where one must ensure they are not left holding the coin when the music stops to avoid getting burnt.