Molly White's Citation Needed - No, Trump didn’t make $50 billion from his memecoin

Episode Date: January 20, 2025

Journalists’ flawed math and ignorance of crypto markets turn tokens into fake fortunes. Originally published on January 20, 2025.

I'm Molly White, and you're listening to the audio feed for the citation-needed newsletter. You can see the text version of the newsletter online at citation-needed.news. No, Trump didn't make $50 billion from his meme coin. Journalists flawed math and ignorance of crypto markets turned tokens into fake fortunes. This issue was originally published on January 20, 2025. When Donald Trump launched a meme coin, days before his inauguration, newspapers were quick to try to grab headlines with huge numbers. Quote, the Trump meme coin, 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. Quote, the 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. 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 assigned 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 the Trump meme coin as an example, people are currently trading these coins for around $53 a piece. There are 200 million of them in circulation, which puts the tokens, already highly questionable, as I explain in a moment, so-called 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, one 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 so-called 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 there is another more than $40 billion that is guaranteed to just materialize. This is not to downplay that Trump is grifting his devotees

and those crypto-traders looking to make a buck on meme coin 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 one dollar, 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, quote, crypto billionaires,

or trillions of dollars of, quote, 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. It's clear that 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, quote, worth X dollars, 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 alt coins. 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 ether. 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 one Bitcoin equals one Bitcoin 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 Web 3 is going just great, I too look up the price of whatever 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. And to get the total market cap of all cryptocurrencies, we sum up all of the market caps for all cryptocurrencies. There are many cryptocurrency exchanges, trackers, DFI platform, 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.

Coin market cap, owned by Binance, is a popular tracker and is widely cited in both crypto-specific and mainstream media when referring to specific cryptocurrencies prices and 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 of, or even hundreds of eaths, chances are they could sell them for dollars at the current price on an exchange minus fees. Retail holders 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. 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 molly coin, and I write some code to create a billion molly tokens out of thin air, how much are they worth? In reality, approximately zero dollars. I 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 Mali 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, molly coin 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 convinced someone to give me 0.003Eth,

which is around $1 at the time of writing, for my one Mali token, and voila, $1 billion market cap, because market caps are almost always displayed in dollars, despite my molly tokens 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 one ETH for one molly token, now molly coin 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 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 Mali coin. It's being counted twice. It should be clear in this contrived example that there is no way

people could actually cash out all those Mali 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? Molly coin'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 token, but it's also now based on the arbitrary dollar-denominated value of that token as well, and so on.

Now extrapolate all this 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, molly coin's so-called total value is all fake, and chances are probably quite low that I could find some sucker to buy the remaining $999 million. 99,999Mali tokens from me for dollars or ether or anything else. But the press can still write that I'm an overnight billionaire, or that Molly coin has a market cap of $1 billion. Furthermore, if I can convince coin market cap to include molly coin along 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 almost 1 billion molly coins I had left, and I make out like a bandit. They paid me almost a billion dollars for my tokens, and I happily sold them. Their crypto trading app shows them that they hold almost a billion molly tokens worth almost a billion dollars. 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 page on blockchain explorers like SolScan show a never-ending stream of trades on often bizarrely named and extremely illiquid new coins, like Donald Trump Takeover, which has $8,200 in trading volume, Me Moore General, which has $12,000 in volume, and Official So Beautiful coin, which has $542 in volume. There are many traders in crypto who like to try to pick the next shit coin 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, quote, very small number of accounts caused the price of Bitcoin on the Bitmex Exchange to flash crash by 87%, from around $66,000 to as low as $8,900. For similar reasons, the crypto markets get jittery every time the U.S. government threatens to sell off a large amount of their seized Bitcoins. Wash Trading Wash trading is so common in crypto that the executives in the industry periodically forget that it's illegal. It is particularly prevalent with NFTs, where some marketplaces outright encourage the behavior.

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, quote, worth, considerably more than when they started, despite no real person actually being willing to pay more for it. Sometimes the new price tag 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, quote, record-breaking NFT sales, and that often accomplishes Washed Traders' goals of driving attention to the project. Media outlets have eagerly run headlines on celebrities and influencers, quote, 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're authentically interested, which is theoretically illegal, by the way. 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 liquid tokens cause the price to crash. 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 narrative 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 not. 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 amount of dollars, or NFTs priced at X amount of dollars, or theft of crypto tokens nominally worth X amount of dollars 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 meme coin 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 token's supposed values. Thanks for listening to this issue of the citation-needed newsletter.

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