What’s in a name? Not investment value

Hey there, time traveller!
This article was published 19/02/2025 (253 days ago), so information in it may no longer be current.

You’re probably familiar with the saying, “If it looks too good to be true, it probably is.”

Or maybe this one: “A fool and his money are soon parted.”

But perhaps there should be an even more direct version: “If you’re investing because of who is backing the latest cryptocoin, you’re about to get hosed.”

Take the $Trump cryptocurrency memecoin: if you’re a dyed-in-the-wool Trump backer, someone who believes to the core that Donald J. Trump is a modern-day saviour for the United States, you might have been tempted to invest in the coin he and his sons were hyping, if for no other reason than because he has your undying and complete trust.

As a neophyte investor in crypto, you might even have believed that everything in that shadowy realm is almost guaranteed to be a good thing. And it was — for some.

Two minutes after $Trump went live, one investor bought 5,971,750 of the tokens for 18 cents US apiece. The currency then rose to as high as $US75 each, and then plunged to US$17.

There certainly were winners on the coin: that early investor cashed out two days after their purchase for US$109 million, for example, and the Trumps and their partners have made close to US$100 million from trading fees.

But the average investor? Well, a forensic examination launched by the New York Times of trading on the coin found that more than 800,000 investors likely lost a combined total of more than US$2 billion.

A $Melania memecoin rose to C$19.37 on the day of its launch at C$8.08, but fell to C$5.50 the next morning, eventually losing more than 90 per cent of its value. Tuesday morning, it was worth C$1.74, and its decline has been steady.

And the grift has gone international.

After a supportive message from Argentine President Javier Milei on social media saying the cryptocurrency token would, “incentivize the growth of the Argentine economy, funding small companies and Argentine ventures,” (including a helpful link to quickly buy the coin) the $LIBRA shot up in price. (Milei has since said he was misled when he made his post about the token.)

The meme coin did a similar takeout on gullible investors in that country, with the coin’s developers pulling out over US$100 million in gains and trading fees within an hour after the token went on sale. It’s lost more than 91 per cent of what it was selling for at its highest price.

The New York State department of financial services has a slightly longer version of “if it looks too good to be true…”

Their version goes like this: “New Yorkers are advised that the coins described above may be part of schemes in which the creators or their associates artificially inflate the price of the coins and then sell their own coins rapidly at an inflated price, reaping substantial profits while causing the price to crash (often called “pump-and-dump schemes” or “rug pulls”). … It may often be difficult for the public to tell which coins are being manipulated, but consumers should be especially wary of the recent proliferation of sentiment-based coins that are created through unlicensed platforms that enable coin creation in a few clicks by individuals with no technical expertise.”

Here’s a simple couple of corollaries: if you know nothing about cars and your car won’t start, you don’t open the hood and just randomly start disconnecting wires. If you don’t know anything about medicine and have a festering wound, you don’t follow the first random social media post you read, advising you to pour household cleanser into it.

And if you want to keep your money, remember that having a popular face in the promotion or in the name doesn’t give it instant value.