Given the huge circulating supply of WLFI tokens, the price upside of the crypto may be limited.
The number of ways to invest in President Donald Trump’s rapidly expanding crypto empire continues to grow. The latest opportunity is the chance to buy the digital tokens of World Liberty Financial (CRYPTO: WLFI), the crypto venture affiliated with the Trump family.
But should you take the leap and invest? While it might be tempting to invest in anything that has the implicit seal of approval from the president of the United States, there are three warnings for any prudent investor.
The new WLFI tokens do not convey equity ownership interest in World Liberty Financial. Even though the launch of the new crypto tokens might sound like a new form of tokenized equity, they are not.
Just to see how things worked, I bought a small number of these tokens. I bought them the way I would buy any other cryptocurrency — I logged into Coinbase Global (NASDAQ: COIN), placed an order, and within seconds, the new tokens were in my account. I didn’t have to fill out any accredited investor forms, and I certainly did not receive a welcome email from Trump, congratulating me on my new purchase.
The best way to think about these tokens is that they enable you to benefit from the upside potential of World Liberty Financial, without actually owning any part of the company. If the company does well, the price of the WLFI tokens should appreciate. But conversely, if World Liberty Financial does poorly, the tokens might end up being worthless.
In crypto parlance, the WLFI tokens are governance tokens. In other words, they might enable you to vote on changes to the blockchain, or on new efforts to expand the World Liberty Financial blockchain ecosystem. But they do not enable you to vote on what’s actually happening at the company.
If you are looking to have an equity ownership interest in a Trump crypto venture, you might be better off looking at American Bitcoin Corp. (NASDAQ: ABTC), the new Bitcoin mining company backed by the Trump family. Or, you might want to take a chance on Trump Media & Technology Group (NASDAQ: DJT), which appears to be transforming into a Bitcoin treasury company.
You should definitely do your due diligence any time you are buying a digital token priced under $1. These bargain-priced tokens are notoriously volatile, and prone to intense speculation. It’s not uncommon for their price to soar in the early days, and then immediately collapse.
Case in point: when the WLFI token started trading, its price was $0.45. Within a week, it had shed nearly 60% of its value, and currently trades for about $0.20. Investors who got in early might have made a tidy profit. But everyone else likely did not.
This is all very reminiscent of what happened with the Official Trump meme coin in January. The meme coin launched to spectacular fanfare and intense speculation, only to crash soon thereafter.
One underreported aspect of WLFI is its enormous supply. There are 100 billion coins in circulation. That’s large, even by crypto standards. The circulating coin supply of Bitcoin (CRYPTO: BTC), for example, is just 21 million.
Circulating coin supply matters a lot, because the market cap of a cryptocurrency is derived from a basic formula: circulating coin supply times price. Thus, the larger the circulating supply, the higher the market cap. That often leads to a situation where a brand-new cryptocurrency trading for mere pennies appears to have the heft and weight of a much more established cryptocurrency.
And indeed, that’s the case with World Liberty Financial. The total market cap of World Liberty Financial is $5.2 billion, ranking it among the top 30 cryptocurrencies in the world. That, despite the fact it only started trading this month.
Most coins with astronomically large coin supplies never make it past the $1 mark. For example, the meme coin Pepe (CRYPTO: PEPE) is currently ranked as the 31st-largest cryptocurrency in the world by market cap. But that’s only because it has a coin supply of 420 trillion!
The good news is that World Liberty Financial has already started a program of token burns (a process by which tokens are taken out of circulation), to bring the token supply down to a more manageable level. Over time, that should help to prop up its price.
I completely understand why so many investors might be tempted to invest in World Liberty Financial. Unlike the Official Trump meme coin, which was backed by nothing more than hype and buzz, the World Liberty Financial token is backed by a real-world business. World Liberty Financial recently launched a high-profile stablecoin, and has big plans to expand in decentralized finance (DeFi).
However, due to the three warning signals above, I’m skeptical of its long-term upside potential. If you’re looking for a high-upside crypto token with a maximum coin supply of 100 billion, a far better pick might be XRP (CRYPTO: XRP).
Before you buy stock in World Liberty Financial, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and World Liberty Financial wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $670,781!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,023,752!*
Now, it’s worth noting Stock Advisor’s total average return is 1,052% — a market-crushing outperformance compared to 185% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.
Dominic Basulto has positions in Bitcoin, World Liberty Financial, and XRP. The Motley Fool has positions in and recommends Bitcoin and XRP. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.
Read more on NASDAQ Stock Market
