President Donald Trump’s latest business move is pushing into cryptocurrency, and it has sparked both excitement and concern. Through a new partnership with Crypto.com, Trump Media is forming a treasury-style company that will accumulate large amounts of Cronos (CRO) and go public under the Nasdaq ticker MCGA. While some see potential upside, experts warned that everyday investors could face risks that outweigh the rewards.
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Legal Risks Loom
“Trump’s new crypto company may blur the line between token promotion and unregistered securities offerings,” according to Chad Cummings, a CPA and attorney and owner of Cummings & Cummings Law.
What that means is, by pooling and distributing large amounts of Cronos (CRO) through a publicly traded company, the project risks being treated as a kind of investment contract. Federal and state regulators could see it as an unregistered security, which usually requires strict approvals. If investors are led to believe they’ll profit because of Trump Media’s involvement, promoters and brokers could be exposed to lawsuits or penalties.
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Why This Deal May Favor Insiders
This kind of deal is what’s known as a Special Purpose Acquisition Company (SPAC). It’s basically a “blank check” company that raises money from investors with the sole purpose of buying or merging with another company, Cummings explained.
“A SPAC listing increases dilution risk for retail investors … and amplifies the potential for material omissions or misstatements in disclosures,” Cummings said. In plain terms, this kind of deal could benefit insiders and sponsors more favorably than the average small investor.
If the company doesn’t fully reveal how much CRO it’s buying, who is helping move the market or when insiders are allowed to sell, that lack of transparency could open the door to lawsuits. Many investors may also discover too late that the actual number of shares available to trade is far smaller than advertised, making the stock riskier than it looks.
Market Manipulation Concerns
“Concentrated purchases of Cronos tokens could be viewed as a form of market manipulation,” Cummings said. If Trump’s company buys up massive amounts of CRO and drives the price higher, regulators might see it as an attempt to mislead investors. The risk is even greater if insiders time their announcements to elevate prices and then use those spikes to market MCGA stock.
“For everyday investors, that means early price jumps in CRO might not come from real demand in the market, but from deliberate moves by the company to make things look more valuable than they really are,” Cummings said.
The Trump Brand Factor
Cummings thinks that the Trump branding actually “heightens legal and reputational risk rather than reducing it” because regulators historically treat “celebrity-backed” crypto ventures with suspicion.
However, Brian Rudick, chief strategy officer at Upexi, said that the Trump brand may, in fact, benefit CRO. Trump Media has plans to integrate CRO into its Truth Social social media network and Truth+ streaming video platform. It’s also backed by Crypto.com, a leading cryptocurrency exchange.
However, “integrating CRO into Truth Social may lead to additional demand, also causing the price to increase,” Rudick said.
Issues could arise if Trump or his affiliates personally benefit from CRO reserves or related-party deals without transparent disclosure, Cummings said. “That could create direct liability under federal and state anti-touting provisions. Investors should not mistake celebrity association for regulatory approval.”
Treat It as Speculative
“The prudent next step for investors is to treat CRO and MCGA as extremely speculative,” Cummings urged. He went so far as to suggest that investors should only invest “if they feel comfortable possibly losing all their invested funds.”
They should also verify compliance with securities registration requirements before committing funds. “Due diligence is the name of the game,” he said.
Be sure to obtain and read the S-4 registration statement, all SPAC merger filings and any disclosures regarding the CRO treasury before investing, he urged.
Know Your Investing Parameters
If you’re an investor with a positive opinion on the future price of CRO with funds to spare, it may be a good investment for you, Rudick said. CRO is the native token of the Cronos layer one blockchain, which could grow significantly. Since Cronos is linked to Crypto.com, there’s also growth opportunity if Crypto.com expands.
However, Rudick noted, “The hype around this venture is most likely mainly due to Trump’s involvement, the novel integration of the token into Truth Social and the size of the initiative.”
Stay Cautious
At the end of the day, investors should be cautious. Rudick noted, “Cryptocurrency is extremely volatile, and especially so once one moves out of the top five tokens. One should never invest more than they can afford to lose.”
The Trump crypto venture may be headline-grabbing, but for everyday investors it’s still a high-risk gamble.
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This article originally appeared on GOBankingRates.com: What Trump’s New Crypto Venture Could Mean for Investors
