No, Trump didn’t make $50 billion from his memecoin

No, Trump didn’t make $50 billion from his memecoin

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When Donald Trump launched a memecoin days before his inauguration, newspapers were quick to try to grab headlines with huge numbers.

“The $TRUMP memecoin — a financial asset that didn’t exist on Friday afternoon — now accounts for about 89% of Donald Trump’s net worth,” wrote Axios, which dubbed him a “crypto billionaire”.¹ “[T]he so-called fully diluted value of all the tokens as of Saturday at noon was $30 billion, a number achieved less than a day after the token went on the market,” wrote the New York Times.² Newspapers’ estimates of fully diluted value fluctuated wildly from somewhere around $20 billion to around $70 billion, depending on which paper you read and when they published.

That the numbers fluctuated by about $50 billion within the span of only hours or days perhaps should have been a sign to these reporters that the numbers aren’t real. Fully diluted valuation is an estimate so flawed that even publishing it should be considered journalistic malpractice. It is calculated by taking the current going price for a crypto token on an exchange and multiplying it by the total number of tokens that may ever exist for that cryptocurrency. To use $TRUMP as an example, people are currently trading these coins for around $53 apiece. There are 200 million of them in circulation, which puts the token’s (already highly questionable, as I explain in a moment) “market cap” at around $10.7 billion. Eventually, over a period of three years (assuming Trump does not lose interest or change the parameters of the deal), 1 billion tokens are set to be released. It is this supply — three years from now — that is being multiplied by the current price of the tokens to achieve estimates in the several tens of billions for how much Trump’s “net worth” has increased, as though it can be safely assumed that not only will the price remain stable over the next three years, but that there is another more than $40 billion that is guaranteed to just materialize.

This is not to downplay the extent to which Trump is grifting his devotees and those crypto traders looking to make a buck on memecoin speculation. But it is important that we accurately report on his cons and do not contribute to misleading crypto hype for the sake of large numbers.

In reality, while people naturally look to dollars to try to make sense of the real-world value of the crypto tokens that appear overnight, cryptocurrency is incredibly hard to accurately value. Terms like “market capitalization”, which have well-known meanings when used in traditional financial markets, are something else entirely in crypto. People regularly try to extrapolate the sale price of a tiny number of tokens to their often massive supplies, assuming that if you can sell one token for $1, how hard could it be to find eager buyers at that price for another trillion or so tokens?

In July 2022, as the previous crypto bubble was popping and before I began writing this newsletter, I wrote a blog post titled “Cryptocurrency ‘market caps’ and notional value” where I attempted to explain these flawed estimates. Here is a lightly edited and updated version of that post.

When headlines speak of “crypto billionaires”, or trillions of dollars of “crypto market cap”, where do these numbers come from? Is each cryptocurrency project sitting on a bank account with actual dollar bills to match their supposed market cap? Of course not. Even the crypto tokens that do claim to be doing this aren’t doing this.^a It’s clear there isn’t a real dollar in the crypto ecosystem for each reported dollar of market cap, but beyond that, it doesn’t even seem to be close.

Like it or not, crypto is valued in dollars

When someone tells you that a pile of crypto tokens are “worth” X dollars,^b what does that mean?

The urge to represent crypto prices in dollars makes sense. Most average people probably couldn’t tell you if a bitcoin was worth on the order of dollars or tens of thousands of dollars or hundreds of thousands of dollars, and far fewer people would be familiar with the prices of minor altcoins (quick! what’s a Baby Doge Coin trading at?) Even people who know that ether has been trading somewhere around $3,400 lately (plus or minus a few hundred depending on the day) will usually prefer to do the mental math when someone refers to a quantity of ETH, because even crypto people tend to think of the world around them in terms of the traditional currency they use for day-to-day transactions.

There are crypto proponents out there who will say things like “1 BTC = 1 BTC”, and that the dollar price doesn’t matter, but that’s marketing — note how that only becomes a common refrain when Bitcoin isn’t doing so well against the dollar. There are crypto critics out there who will say we shouldn’t use dollar values at all for the reasons I’m about to outline, but that’s frankly unrealistic. I don’t entirely disagree with the premise — after all, the whole reason I’m writing this article is because people are being misled by the practice — but the fact of the matter is that when a crypto project is hacked and I need to decide if it’s a sufficiently significant event to include in Web3 is Going Just Great, I too look up the price of whichever token was stolen and get to multiplying.

The crypto value equation

To get the dollar value of a pile of crypto tokens, we take the price of that cryptocurrency on an exchange and multiply it by the quantity of tokens in the pile. To get the market cap, we take the price of that cryptocurrency and multiply it by the total number of tokens in circulation. To get the “fully diluted valuation” we take the price of that cryptocurrency and multiply it by the maximum possible number of tokens planned to ever exist for that cryptocurrency. To get the total market cap of all cryptocurrencies, we sum up all of the market caps for all cryptocurrencies.^c

There are many cryptocurrency exchanges, trackers, defi platforms, and other projects out there that show the market cap of various tokens. Each of them calculates it in roughly this way, although there are variations. Some use circulating supply, whereas some use fully diluted supply to represent the number of tokens. Some employ various strategies to try to filter outlier or manipulated data. CoinMarketCap (owned by Binance) is a popular tracker, and is widely cited in both crypto-specific and mainstream media when referring to specific cryptocurrencies’ prices, market caps, and the market cap of crypto as a whole, so I refer to it throughout.

This naive equation works well for estimating the value of fairly small quantities of popular, liquid cryptocurrencies. If a trader holds a couple ETH, or even hundreds of ETH, chances are that they could sell them for dollars at the current price on an exchange, minus fees.^d Retail traders who hold bitcoin, ether, or any other reasonably popular cryptocurrency just don’t tend to hold them in quantities that would require them to second guess the dollar value that their crypto app shows them.

But when we’re talking about market caps, large quantities of a token, or any amount of the many minor tokens that exist, there are some additional factors that need to be considered.

Many factors introduce error

Price

The price of a cryptocurrency is, as with most things, whatever someone else is willing to pay for it. But how is price determined for brand new coins? If I decide to hop on the crypto bandwagon and create MollyCoin, and I write some code to create a billion $MOLLY tokens out of thin air, how much are they worth? In reality, approximately $0 — I’ve put no real money into the system, and they don’t represent any good or service that might be considered valuable. But if I can convince someone to buy one $MOLLY token from me for $1 on one of the many exchanges that will allow you to exchange any token under the sun, suddenly we have a price! And even though only one token has ever traded hands, because market cap is calculated by taking the price per token on an exchange and multiplying it by the number of tokens circulating,^e MollyCoin now has a “market cap” of $1 billion.

Most cryptocurrency trades don’t involve dollars on the other end, but rather other cryptocurrencies like bitcoin or ETH or Solana. A much more likely scenario than the one I just described is that I convince someone to give me .0003 ETH (around $1 at the time of writing) for my one $MOLLY token, and voila: $1 billion market cap (because market caps are almost always displayed in dollars) despite $MOLLY never having been traded against the dollar.

Now, imagine I created exactly the same number of $MOLLY tokens as there are ETH tokens. If I can convince someone to give me 1 ETH for 1 MOLLY, now MollyCoin has the same market cap as Ethereum (around $406 billion at the time of writing). Even if we assume that there is actually $406 billion worth of real, fiat currency floating around in the system to form the reported Ethereum market cap, we now have two tokens each ostensibly worth $406 billion, with no additional fiat being introduced. Each dollar that is backing some amount of ETH is also “backing” MollyCoin — it’s being counted twice. It should be clear in this contrived example that there is no way people could actually cash out all MOLLY and ETH tokens and somehow wind up with $812 billion in fiat. Crypto is not a magic money machine that creates real dollars out of thin air.

Now, what happens if I convince someone to buy my highly illiquid crypto token with some other highly illiquid crypto token? MollyCoin’s dollar-denominated market cap is now not only arbitrarily based on however many of those tokens I could convince someone to give me for one MOLLY, but it’s also now based in the arbitrary dollar-denominated “value” of that token as well. And so on.

Now extrapolate all this that to the actual cryptocurrencies that exist today — how much actual value exists in the system, and how much is just double, triple, or n-times counting the same dollars?

Of course, MollyCoin’s “total value” is all fake, and chances are probably quite low that I could find some sucker to buy the remaining 999,999,999 MOLLY from me for dollars (or ETH or anything else). But the press can still write that I’m an overnight billionaire, or that MollyCoin has a market cap of $1 billion. Furthermore, if I can convince CoinMarketCap to include MollyCoin alongside the million (and counting) cryptocurrencies they track, the total market cap of crypto shown on that site will have miraculously increased by $1 billion just like that.

Liquidity

Now imagine I did find a buyer for my 999,999,999 MOLLY and I make out like a bandit. They paid me $999,999,999 for my tokens, and I happily sold them. Their crypto trading app shows them they hold 999,999,999 $MOLLY, worth $999,999,999. But in a week when they check back in on the market and see no offers in the order book to purchase the tokens they now hold, they might find themselves in a tough spot: they’re trying to sell all of these tokens that have no liquidity. No matter what the price is, in order for someone to be a seller there must be a buyer, and that is not always the case with crypto.

The recent token transfers pages on blockchain explorers like Solscan show a never-ending stream of trades of often bizarrely named and extremely illiquid new coins like “Donald Trump Take Over” ($8,200 in trading volume), “Meme War General” ($12,000 in volume), and “Official So Beautiful Coin” ($542 in volume). There are many traders in crypto who like to try to pick the next shitcoin they hope will “moon” like Shiba Inu or Dogecoin once did, hoping that one early, against-all-odds gamble will pay back massive returns. Most of the time they wind up with worthless tokens they can’t sell at all, much less flip for a profit or even resell to break even.

The larger tokens like bitcoin, ether, and solana tend to have reasonable liquidity for most retail-sized quantities, but as you begin to go further and further down the list, chances decrease that a person could offload even fairly small numbers of tokens without impacting the token price.

Even the most popular and liquid cryptocurrencies can experience chaos with large and sudden sales, even if the overall token price is not significantly affected. In March 2024, a “very small number of accounts” caused the price of bitcoin on the BitMEX exchange to “flash crash” 87%, from around $66,000 to as low as $8,900 [W3IGG]. For similar reasons, the crypto markets get jittery every time the US government threatens to sell off a large amount of their seized bitcoins.³

Wash trading

Wash trading is so common in crypto that the executives in the industry periodically forget that it’s illegal [I69]. It is particularly prevalent with NFTs, where some marketplaces outright encourage the behavior [W3IGG]. When someone wash trades a cryptocurrency token or NFT, it means they sell it between wallets they control, or wallets controlled by co-conspirators, for increasing amounts to try to mimic organic demand. At the end of it all, they have a token that’s “worth” considerably more than when they started, despite no real person actually being willing to pay more for it. Sometimes the new pricetag alone is enough to artificially create demand and sometimes it’s not, but it quite often appears to be more than sufficient to trick journalists for publications like the New York Times into reporting on “record-breaking” NFT sales⁴ — and that often accomplishes wash traders’ goals of driving attention to the project.⁵ Media outlets have eagerly run headlines on celebrities and influencers “buying” NFTs, only for researchers to discover a web of transactions that suggest they’re quietly being paid to promote NFT projects as though they are authentically interested (which is theoretically illegal, by the way).⁶ Even Melania Trump has been implicated in wash trading her NFT tokens to create the illusion of demand [W3IGG].

Wash trading is common across all crypto markets to try to game crypto “trading volume”, helping to convince traders that there are actual buyers for the tokens they’re speculating on, and often to try to suggest that interest in a token is really taking off (and therefore, that the token price is likely to go up). However, when someone buys a wash-traded token and then later tries to sell it, they may be disappointed to discover that the supposedly deep market suddenly has no interested buyers.

Why does any of this matter?

The “market cap” measurement has become ubiquitous within and outside of crypto, and it is almost always taken at face value. Thoughtful readers might see such headlines and ask questions like “how did a ‘$2 trillion market’ tumble in 2022 without impacting traditional finance?”, but I suspect most just accept the number and move on.

When crypto projects are hacked, there are headlines about hackers stealing “$166 million worth” of tokens, when in reality the hackers only could cash out 2% of that amount (around $3 million) because their attempts to sell illiquid tokens caused the price to crash [W3IGG].

When NFTs are stolen, large numbers are thrown around without any clarity as to whether they are the original prices paid by the victims for the NFTs, the prices netted by the thieves when flipping them, the floor prices, or some other value.

I’m guilty of sentences like this myself — it’s an easy habit to slip into.

But this serves to legitimize cryptocurrency as though it is a much bigger industry than in reality, with far more actual money floating around than there really is. It also serves to perpetuate the narratives that crypto tokens and NFTs are “worth” far more than they could likely fetch in an actual sale, or that they tend to appreciate in value dramatically, and this encourages more people to buy in to projects that are likely to result in losses. Stories about “crypto-millionaires” or -billionaires encourage more people to put their real money into the system — something it desperately needs — not realizing that they may be exchanging it for “gains” on a screen that can never be realized.

What needs to change?

Most importantly, there needs to be regulation and enforcement around inauthentic, predatory behavior in crypto — be it wash trading, undisclosed promotions, or intentional price manipulation.

Crypto exchanges and trackers should be clear about how market caps are being calculated — namely, which are being extrapolated only from trades against other cryptos, and essentially double-counted. They also need to be clearer about the enormous margins of error in their calculations: the entire market cap of crypto is represented on some popular tracking websites down to the cent, but that level of precision is nowhere near possible.

Finally, journalists and others in media need to understand the true meaning of “market cap” and dollar value and fully diluted valuation when writing about cryptocurrency, and convey that meaning to their readers. Careful word choice can make a difference: I often write about “Crypto tokens notionally valued at $X”, or “NFTs priced at $X”, or “theft of crypto tokens nominally worth $X (based on the token value before the hack)”. More than anything, journalists should question everything in an industry where there is always an incentive to promote, inflate, and exaggerate.

The Trump memecoin saga is a perfect example: by breathlessly reporting astronomical “fully diluted valuations” without proper context or skepticism, news outlets have helped to legitimize yet another crypto scheme while failing to accurately inform their readers about the true nature of these tokens’ supposed values.

I have disclosures for my work and writing pertaining to cryptocurrencies.