Political Influences on Cryptocurrency: The Cases of Argentina and the United States
Recent initiatives in cryptocurrency by leaders such as Javier Milei and Donald Trump highlight the volatility and risks associated with such digital assets.
In Argentina, the cryptocurrency initiative known as 'Libra' was announced by President Javier Milei in mid-February 2023, with the intention of stimulating economic growth by financing small and medium-sized enterprises (SMEs).
Following the announcement, the token's price experienced a rapid increase from a few cents to nearly five dollars, only to plummet dramatically when early investors decided to sell, resulting in significant losses for a majority of other investors.
Milei later retracted his support for the 'Libra' and denied any responsibility, arguing that investors should be aware of the inherent risks, likening the situation to gambling.
According to Claire Balva, a strategy director for the fintech firm Deblock, the fallout from the 'Libra' has negatively impacted the broader cryptocurrency market.
While political endorsement can enhance legitimacy, subsequent conflicts, hacks, or speculative attacks can yield counterproductive effects.
Larisa Yarovaya, director of the Centre for Digital Finance at Southampton Business School, echoed these sentiments, suggesting that the cryptocurrency sector remains susceptible to adverse outcomes linked to high-profile endorsements.
In the United States, former President Donald Trump launched a unique cryptocurrency categorized as a 'memecoin' before his presidential inauguration.
This type of token is characterized by its volatility and ties to viral personalities, primarily serving as a vehicle for speculation.
Following an initial surge in interest, Trump's memecoin declined significantly, causing losses exceeding $2 billion for roughly 810,000 investors, as reported by Chainalysis.
Despite the losses incurred by investors, Trump reportedly gained at least $350 million from the operation.
Hayden Davis, one of the co-founders of 'Libra', stated that he drew inspiration from Trump's success in the cryptocurrency space.
It is noteworthy that Bitcoin, the first cryptocurrency, was created in 2008 to avoid central control, using a decentralized technology known as blockchain to validate transactions.
However, the absence of a centralized authority leads cryptocurrency investors to rely on the endorsements of prominent figures, as highlighted by Maximilian Brichta from the University of Southern California.
Following Trump’s approach, the Central African Republic, which became the second nation to adopt Bitcoin as legal tender after El Salvador, also introduced its own memecoin, known as 'Car'.
Initially viewed with skepticism, the value of 'Car' plummeted by more than 90% within hours of its launch.
Many traders engage in automated trading strategies to capitalize on rapid fluctuations in new cryptocurrencies.
To mitigate the risk of price manipulation during cryptocurrency launches, best practices recommend that initial investors, who gain access before the general public, hold a minor share of the total offering and are subject to lock-up periods.
However, in the case of 'Libra', more than 80% of the available tokens were reportedly held by a small group of large investors who had the capacity to liquidate their holdings at any time, raising concerns about potential misconduct or egregious imprudence.
Following the announcement, the token's price experienced a rapid increase from a few cents to nearly five dollars, only to plummet dramatically when early investors decided to sell, resulting in significant losses for a majority of other investors.
Milei later retracted his support for the 'Libra' and denied any responsibility, arguing that investors should be aware of the inherent risks, likening the situation to gambling.
According to Claire Balva, a strategy director for the fintech firm Deblock, the fallout from the 'Libra' has negatively impacted the broader cryptocurrency market.
While political endorsement can enhance legitimacy, subsequent conflicts, hacks, or speculative attacks can yield counterproductive effects.
Larisa Yarovaya, director of the Centre for Digital Finance at Southampton Business School, echoed these sentiments, suggesting that the cryptocurrency sector remains susceptible to adverse outcomes linked to high-profile endorsements.
In the United States, former President Donald Trump launched a unique cryptocurrency categorized as a 'memecoin' before his presidential inauguration.
This type of token is characterized by its volatility and ties to viral personalities, primarily serving as a vehicle for speculation.
Following an initial surge in interest, Trump's memecoin declined significantly, causing losses exceeding $2 billion for roughly 810,000 investors, as reported by Chainalysis.
Despite the losses incurred by investors, Trump reportedly gained at least $350 million from the operation.
Hayden Davis, one of the co-founders of 'Libra', stated that he drew inspiration from Trump's success in the cryptocurrency space.
It is noteworthy that Bitcoin, the first cryptocurrency, was created in 2008 to avoid central control, using a decentralized technology known as blockchain to validate transactions.
However, the absence of a centralized authority leads cryptocurrency investors to rely on the endorsements of prominent figures, as highlighted by Maximilian Brichta from the University of Southern California.
Following Trump’s approach, the Central African Republic, which became the second nation to adopt Bitcoin as legal tender after El Salvador, also introduced its own memecoin, known as 'Car'.
Initially viewed with skepticism, the value of 'Car' plummeted by more than 90% within hours of its launch.
Many traders engage in automated trading strategies to capitalize on rapid fluctuations in new cryptocurrencies.
To mitigate the risk of price manipulation during cryptocurrency launches, best practices recommend that initial investors, who gain access before the general public, hold a minor share of the total offering and are subject to lock-up periods.
However, in the case of 'Libra', more than 80% of the available tokens were reportedly held by a small group of large investors who had the capacity to liquidate their holdings at any time, raising concerns about potential misconduct or egregious imprudence.
