Trump Meme Coins Face Scrutiny After Rapid Launch Before Inauguration
Within 24 hours of Donald Trump’s self-branded Official Trump (TRUMP) token reaching an impressive $15 billion market cap, Melania Trump introduced her own meme coin, called MELANIA.
The rapid launch of these newly launched assets has drawn widespread attention and sparked debates, especially concerning the timing and broader implications. Coinage founder Zack Guzmán highlighted the calculated urgency behind these releases.
Strategic Launch of Trump Meme Coins
In his tweet, Guzmán said there is a very important reason why the Trumps are launching TRUMP and now MELANIA so fast before the inauguration. Guzmán explained the potential Constitutional challenges, particularly the Emoluments Clause, which prohibits a sitting President from profiting from foreign governments or using the office for personal financial gain. The exec said,
“Waiting another day could’ve opened him up to Constitutional violations & impeachment (again).”
Both Donald and Melania Trump have explored digital assets for years, utilizing separate companies and teams to create NFTs. According to Trump’s public tax filings, he earned $7.2 million through an NFT deal via CIC Digital. Melania also netted over $330,000 through a similar agreement. By launching their respective tokens before Trump’s potential return to the presidency, the duo appear to be sidestepping direct accusations of profiting from the presidency.
Critics argue that while the Constitution aimed to prevent Presidents from abusing power for personal gain, modern innovations like meme coins present unforeseen challenges. Guzmán further remarked,
“As much as our founding fathers wanted to prevent Presidents from wrongfully profiting from their power, I don’t think Jefferson or Madison ever debated meme coins.”
From SEC Oversight to IRS Taxes
Despite the billions in liquidation, the launch of the TRUMP meme coin has been touted as a bold experiment that aligns with his political persona. However, Web 3 financial management platform FinTAX’s latest analysis stated that the move introduces significant legal, tax, and political risks.
For one, the legal classification of TRUMP is a critical concern. In the US, cryptocurrencies issued through initial coin offerings (ICOs) are often classified as securities, which are subject to strict regulation by the Securities and Exchange Commission (SEC). The SEC uses the Howey Test, which considers factors like financial investment, profit expectation, and reliance on third-party efforts, to determine if an asset qualifies as a security.
Although Trump’s team has avoided promises of future profits and explicitly stated on the TRUMP website that it is not a security, the SEC’s stance on meme coins remains unclear. If TRUMP begins to resemble security in its operations, it could face regulatory scrutiny, as per FinTAX.
Tax compliance presents another layer of complexity. The IRS taxes cryptocurrency profits, and with Trump’s team holding 80% of TRUMP, which will be unlocked over three years, questions arise about whether the unlocking process constitutes a taxable event. Capital gains taxes would apply when assets are sold or traded, making timing, cost basis calculations, and detailed record-keeping crucial to compliance. FinTAX also highlighted that wild price fluctuations further complicate tax filings.
Political concerns loom large as well. The Federal Election Commission (FEC) enforces strict rules on political donations, hence raising potential issues if TRUMP is used to circumvent transparency or contribution limits. While no direct evidence of such misuse has surfaced, the move could disrupt US political finance norms and provoke allegations of corruption. Furthermore, a significant drop in TRUMP’s value might harm Trump’s political reputation.
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