Trumps want you to buy their meme coins — but history should make us cautious about hype

Emmanuel Mogaji, Keele University

Just before assuming office as the 47th president of the United States, Donald Trump introduced his meme coin – $Trump. The digital token attracted lots of attention, and a couple of days after its launch the combined value of the coins was nearly US$8.5 billion (£6.9 billion).

Trump venturing into meme coins is perhaps not surprising, given his history of branding everything from sneakers to bibles. The first lady followed suit with a meme coin of her own ($Melania, which briefly outperformed her husband’s coin).

History shows us that speculative hypes like this are not new. Hype can distort rational decision-making, with investors often neglecting due diligence and failing to ask the usual important questions of their investment.

In 17th-century Netherlands, tulip bulbs became status symbols. Rare varieties could fetch six times a typical salary – until the bubble burst, leaving many financially devastated. Similarly, the South Sea Bubble of the 18th century saw the South Sea Company’s stock price skyrocket based on speculative frenzy (and a high-profile figurehead in King George I) before crashing back down. And the dotcom bubble of the early 2000s saw unproven tech startups achieve sky-high valuations on sheer optimism until the inevitable crash.

The rise of meme coins, including the Trump ventures, bears similarities to the frenzy surrounding these past phenomena. They are driven by hype, the perception of scarcity and the promise of high returns. These factors can inflate the value irrationally and lead to significant financial risks for those who invest.

Meme coins thrive on the power of hype. Prominent figures like Trump and viral sensations such as internet star Haliey Welch’s failed cryptocurrency have the power to generate enormous buzz. Like the tulip mania of the 1600s, these digital tokens don’t hold any intrinsic value but instead rely on public sentiment to drive prices up. The hype can quickly make them seem indispensable and highly valuable, even though they have no physical existence.

The ease of access to meme coins also boosts their popularity. People can buy them online using simple apps or websites – much like shopping for any other product – without the need for a broker or intermediary. This autonomy appeals to modern investors, allowing them to manage their assets from the comfort of their homes. However, the simplicity and convenience often mask the high risks involved.

Social media amplifies the excitement surrounding meme coins, creating a community vibe that fuels their popularity. The constant buzz on platforms and among influencers generates Fomo (fear of missing out), pressuring people to join the bandwagon in pursuit of the potential gains. But this rush can lead to ill-informed decisions.

Meme coins are seen as opportunities for quick and substantial profits – an anonymous buyer (the so-called Lucky Crypto Trader) reportedly made US$100 million within hours on Trump’s coin. But these successes are rare and unpredictable. For most consumers, investing in meme coins is like gambling, with no guarantees of returns and a high likelihood of losses.

Is it ethical?

As a researcher in financial services marketing and fintech, I focus on the ethical and financial implications of meme coins.

Cryptocurrencies remain largely unregulated, leaving investors without protection. So the influence of prominent figures like the Trumps hyping these assets raises questions of accountability and fairness. This lack of oversight puts inexperienced consumers at significant financial risk, which only serves to underline the need for caution.

The parallels with past speculative bubbles offer valuable lessons. From tulip mania to the dotcom bust, history shows us the dangers of unchecked hype and speculative investments. Consumers should learn from these events to avoid repeating the same mistakes in the cryptocurrency era. There are some basic principles would-be buyers should bear in mind.

To navigate the risks associated with meme coins and cryptocurrencies, consumers should find out more about the technology and become more aware of the trends and performance of the coins. Managing expectations is crucial; speculative investments are unpredictable and the hype can die away quickly. Diversifying investments rather than concentrating all funds in one asset or market can spread risk and provide greater financial stability.

Education is equally important – taking the time to read the fine print on investment opportunities, such as Trump’s coin disclaimer that it is not an investment vehicle, is essential to understanding the true nature of these assets.

Trump’s venture into meme coins is the latest in a long history of speculative financial trends, and he will probably not be the last to capitalise on this craze.

But until regulatory frameworks catch up, consumers should tread carefully, ensuring that their pursuit of profits does not come at the expense of their financial security.

Emmanuel Mogaji, Associate Professor in Marketing, Keele University

This article is republished from The Conversation under a Creative Commons license. Read the original article.