Researchers informed AFP that support for cryptocurrencies from U.S. President Donald Trump or Argentine leader Javier Milei has led to significant financial losses for investors and is harming a sector that is already grappling with issues of trustworthiness.
"The whole cryptocurrency sector is getting stained," stated Claire Balva, the strategic director at fintech firm Deblock.
Argentinian prosecutors are apparently investigating whether Milei committed fraud, criminal conspiracy, or violated his obligations by endorsing the $LIBRA cryptocurrency on social media platforms in February.
The token's value soared from just a few cents to almost $5 and then crashed. Milei deleted his blessing hours later.
He denies all allegations made against him.
"I did not promote it," Milei told broadcaster TN in February, adding it "is a problem between private parties because the State does not play a role here".
He stated that he had acted with integrity.
After several initial investors chose to offload their shares for significant profits, the price plummeted dramatically, resulting in massive losses for most individuals who bought into $LIBRA.
This action similarly pulled down the prices of other digital currencies like Bitcoin.
Hayden Davis, who assisted in launching $LIBRA, mentioned being motivated by the early success of Trump's memecoin, $TRUMP, which coincided with the president's inauguration.
According to the Financial Times, Donald Trump allegedly earned around $350 million from something. However, approximately 810,000 buyers ended up losing over $2 billion collectively, as reported by the crypto data firm Chainalysis.
A memecoin is a type of cryptocurrency that capitalizes on the online fame of a viral individual or trend, typically serving as an investment perceived primarily for speculation rather than practical use.
Relying on trust
Once a fierce critic of cryptocurrencies, Trump has become a fervent defender.
He is offering multiple products linked to digital currencies, notably through his World Liberty Financial exchange, increasing accusations of a conflict of interest.
On paper, his support for crypto projects could boost the sector's legitimacy.
However, it might also have unintended consequences,” stated Larisa Yarovaya, who leads the Centre for Digital Finance at Southampton Business School.
"All potential disputes arising from this... including any hacking incidents, theoretical assaults, as well as any issues related to these particular cryptocurrencies or specific initiatives" could be detrimental, she explained to AFP.
Skepticism also surrounds the introduction of the memecoin $CAR in February by the Central African Republic.
Balva observed that the domain name was reserved just a few days prior to the launch, indicating "that there wasn't enough preparation."
The Central African Republic became the second nation to accept Bitcoin as official currency following El Salvador in 2021; however, El Salvador later changed its stance due to insufficient local support.
As a forerunner to subsequent digital currencies, Bitcoin was introduced in 2008 with the aim of liberating transactions from conventional banking systems and financial intermediaries.
Cryptocurrencies rely on blockchain technology, which publicly documents transactions involving individuals who hold and trade them.
Without a centralized governing body, the system depends on "trust" in the individuals "vouching for these products," according to Maximilian Brichta, a PhD candidate in communications at the University of Southern California.
Rigged game
Numerous traders employ automated programs to purchase a new token at the earliest opportunity with the aim of selling it later for optimal profitability.
Milei countered his critics by comparing the risks faced by purchasers of $LIBRA to someone who enters a casino understanding that they might not come out as winners.
Nevertheless, some argue that with cryptocurrency, the game is inherently biased from the beginning.
To avoid price manipulation, "when launching a cryptocurrency, best practice dictates that the first investors... hold a very small share of the offering" and are prevented from selling for "several years", said Balva.
Except that at the launch of $LIBRA, "more than 80 percent" of the available tokens were in the hands of "a handful of large holders (who) controlled all the liquidity and could liquidate it all at any time", she added.
According to Balva, this was "either monumental recklessness or outright fraud".
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