Milei and His Money Mayhem: The Crypto Scandal in Argentina
Argentine President Javier Milei is in hot water after making a post to X, formerly known as Twitter, supporting the controversial meme coin, LIBRA. Meme coin is the latest fascination taking over the cryptocurrency world. Cryptocurrency defines a wide range of online currencies. These currencies are unique because they do not require a traditional financial institution to make transactions and can be tracked publicly on a system called blockchain, a digital leger of trades made with crypto currencies. Cryptocurrency was established in its most fundamental form in 1989 when David Chaum launched DigiCash, which despite its failure launched an era of innovation for cryptocurrency and by 2010 the first successful cryptocurrency, Bitcoin, was used to make an official transaction. At the time of its creation, Bitcoin was created as an alternative to traditional currency. While crypto has failed to be used for everyday transactions, it has drawn the attention of investors and those looking to take a gamble on this financial frontier. Since Bitcoin, crypto has evolved and changed with various kinds of cryptocurrency in circulation including Ethereum, Tether, and EXR.
It was within this context of a new economic era that Milei ran for president on a platform of economic reform for Argentina, so a post encouraging his people to invest in LIBRA held real weight. On X, he stated “the world wants to invest in Argentina”. However, once people did, the value of the coin increased dramatically before falling abruptly. This left thousands of people with huge losses and all fingers pointed straight at Milei. The fast rise and fall of LIBRA is common for meme coins and it is hard to believe that Milei did not know what he was doing when he made his post on X.
Meme coins, like LIBRA, are often based on prolific internet jokes or “memes”. While more established crypto coins can have good long term investment benefits, the creation and investment in meme coins according to the U.S. Security and Exchange Commission are for “entertainment” or “social interaction”; their value comes from market demand and speculation. Essential meme coins are primarily only created and sold because of people's interest in memes and because they can offer high returns if invested into and sold early. Usually the life cycle for meme coins is only 2-5 days.
The fast rise and fall of these crypto currencies are called “rug pulls,” owing to the fact that the average investor is often left with a metaphorical rug pulled out from under them because early investors with large amounts of the crypto currency start selling their meme coins fast causes the value to drop and later investors to sell their shares at a loss. The “rug pull” effect is similar to the stock exchange's pump and dump. A pump and dump occurs when investors invest in a stock and inflate its value in the stock market in a way that does not match the actual value of the company. This usually happens when traders use inside information to invest together. The increased initial investment causes more people to invest, “pumping” the stock's value before all of the insiders then sell their shares, “dumping” them and causing the value of the stock to fall.
A notable example of this effect was Game Stop’s pump and dump of 2021 when investors invested in Game Stop which at the time was not doing well. This increased the price and values of shares before early investors started dumping their shares causing huge losses for those who invested later. Both pump and dump and rug pulls use insider information to create mass profits for early investors, where those who invest later on are left with huge losses, the caveat is that no one knows when the rug is going to be pulled or people are going to start dumping so the line between early and late investors is often up to chance, a gamble for the investors.
In the case of LIBRA those later investors would have been the ones to invest in LIBRA after Milei’s post, and the ones left with the rug pulled from under them. This is where the key issues with Milei’s post come into play, the support and encouragement from Milei could have been a catalyst for those who did not understand that LIBRA was a meme coin to invest thinking they were investing in a legitimate cryptocurrency. The actions taken by Milie could have caused a mass amount of innocent Argentinian people to lose money and might have caused irreparable damage if it is proved that Milie himself profited from LIBRA.
Milei is facing the consequences of his post, with quite a bit of backlash domestically and internationally. Milei alongside others, including the founder of LIBRA and a possible tie to his sister, are under investigation for the creation and spread of LIBRA and face multiple charges, including fraud, bribery, and abuse of power. As these investigations play out, Milei will have to defend his support of the coin and prove that he acted in good faith. However, the investigations might be hampered by the use of crypto. While the use of the block chain creates a public ledger for the transactions made with it, it only tracks the transactions, not necessarily the people who make them. Block chain allows holders of crypto to stay anonymous. If Milei was bribed with crypto coins or himself profited from LIBRA it could be hard to trace any corruption back to himself because of the anonymous nature of crypto currency. Not being able to “follow the money” in this investigation might prove challenging for investigations as they try to determine the severity of the actions taken by Milei.
This is the first scandal to cast a shadow over Milei’s presidency, but for a leader that ran on a platform of economic overhaul, the potential of corruption is not providing a promising outlook. While he tries to negotiate a new loan with the World Bank and set up Argentina for stable economic growth, it might be hard for him to leave this in the past. While Milei’s influence in international politics grows, it will be interesting to see if and how his goals of economic overhaul will be accomplished despite this setback.