The Cryptocurrency Play

Donald Trump’s Trump Media & Technology Group (TMTG), owner of the Truth Social network, is making a significant move into the cryptocurrency market. The company announced plans to raise $2.5 billion from investors to purchase Bitcoin, signaling a bold financial strategy. This move aims to bolster the company’s valuation, which some analysts view as disproportionately high given its current revenue and losses.

Financial Maneuvers

TMTG has communicated to the Securities and Exchange Commission (SEC) its intention to issue $1.5 billion in shares and an additional $1 billion in convertible bonds. The proceeds will be used to invest in Bitcoin. While this operation will dilute Trump’s stake in the company, it is indeed expected to significantly increase the company’s assets, primarily linked to the cryptocurrency.

The company has already secured a subscription agreement with approximately 50 institutional investors to purchase shares at $25.72 each in a private placement. According to the SEC filing, the net income will be used for “the purchase of Bitcoin already circulating capital and general corporate purposes.” The deal is expected to close this Thursday.

In parallel,TMTG has reached another subscription agreement to issue convertible bonds,with a 35% premium,for a nominal amount of $1 billion,expiring in 2028. The gross income from the bond sale is estimated at $960 million after deducting a 4% emission discount, as communicated to the SEC.

“Bitcoin Treasury” Strategy

TMTG intends to allocate a portion of the net income from the bond placement to establish what it calls its “Bitcoin Treasury.” Crypto.com and Anchorage Digital will provide custody services for Trump Media’s Bitcoin holdings.

Cantor Fitzgerald’s Role

Cantor Fitzgerald, previously led by Howard Lutnick, who served as the United States Secretary of Commerce before joining the Trump cabinet, acted as the financial advisor for this operation.

Market reaction

Following the declaration, TMTG shares experienced a downturn. Shares fell nearly 9% to $23.44, below the placement price.

Executive Perspective

Devin Nunes, CEO and president of Trump Media, stated:

We consider that Bitcoin is a essential instrument for financial freedom, and now Trump Media will maintain cryptocurrencies as a crucial part of our assets. This investment, our first acquisition of such an asset, will help defend our company against harassment and discrimination by financial institutions, which affect many Americans and US companies.
Devin nunes, CEO and president of Trump Media

Company Valuation and Financials

The company is currently valued at approximately $5.1 billion. Though, in the last quarter, it reported revenues of only $820,000 and losses of $32 million. Trump’s 114.75 million TMTG shares are valued at around $2.7 billion.

Trump’s Influence

The company’s primary value is its connection to trump, who uses it as a key communication channel. His son, Donald Trump jr., manages Trump’s participation as a member of the TMTG Council.

Diversification into Crypto

TMTG is shifting from social networking to financial and cryptoactive services.The company announced an agreement with Crypto.com and Yorkville Advisors to launch exchange-traded funds (ETFs) that will invest in Bitcoin and companies aligned with Trump’s policies.

Similar Strategies

Other companies, such as Microstrategy, have adopted similar strategies, accumulating Bitcoin reserves through the sale of shares and debt financing. Microstrategy’s stock market valuation has exceeded $100 billion.

Trump’s Evolving Stance on Crypto

Trump’s views on cryptocurrencies have evolved. During his first term, he referred to them as “not money,” citing their volatility and “air-based” value.However, he has embraced the cause in his second term, both from a business and regulatory perspective.

Family Involvement in Crypto Ventures

A United Arab Emirates fund agreed to allocate $2 billion to a stablecoin in World Liberty Financial, a crypto firm in which Eric Trump, Donald Trump Jr., and Barron Trump participate. The agreement involves significant benefits for the firm. American Bitcoin, a cryptocurrency company co-founded by Eric Trump, also plans to go public.

Campaign Support from Crypto Industry

During his presidential campaign in May 2024, Trump received assurances that cryptocurrency industry supporters would spend generously to support his re-election.

Controversies

Last week, Trump rewarded 220 investors of the MEME $Trump currency with a private dinner, leading to accusations of mixing his White House functions with personal benefits.