new York
CNN
—

After a ridiculous rise over the last five weeks that had absolutely nothing to do with the company's actual business, former President Donald Trump's social media stocks are suffering a sudden setback.

Truth Social owner Trump Media & Technology Group's stock price plunged 22.3% on Wednesday. That's Trump Media's worst one-day loss since it went public in March, narrowly exceeding its 21.5% loss on April 1.

Closing above $51 on Tuesday, Trump's dominant stake in the company was valued at about $5.9 billion. By the close of trading on Wednesday, the value of Trump shares had fallen to $4.6 billion. That means Trump lost $1.3 billion in net worth in a single day.

It's not exactly clear what caused the sharp reversal at Trump Media, whose stock price has become an indicator of how traders expect the outcome of this election. Trump Media did not release any major news that would explain the crash.

Some traders attributed the strong selling to technical factors and a loss of momentum in the now-meme stock.

Trump Media stock has been exceptionally volatile throughout the year. The stock doesn't need any official company announcements to dramatically move up or down.

Until Wednesday it was going in one direction: straight up.

Between September 23 and the closing bell on Tuesday, Trump Media's value had quadrupled. This stunning rally was fueled by bets on Wall Street that Trump would win the White House.

The huge gains pushed Trump Media's value to $10.3 billion as of Tuesday's close. That means it was briefly worth more than the implied value of X, Elon Musk's social network formerly known as Twitter.

This is despite the fact that X has about 70 million monthly active U.S. users on iOS and Android as Truth Social, according to Similarweb data shared with CNN. That's roughly 100 times Truth Social's 698,000 monthly active U.S. users.

Even Threads, Meta's relatively new X-competitor, has about 20 times Truth Social's user base, according to Similarweb.

Trump Media's fundamentals remain very modest for a company still valued at more than $8 billion.

By comparison, CBS owner Paramount Global, a company whose market value was recently surpassed by Trump Media, has generated more than $14 billion in revenue so far this year.

But Trump Media only generated $1.6 million in revenue this year.

“Fundamentally, valuation is a mystery, but we have seen other meme stock narratives like AMC and GameStop on a similar path in recent years,” Dan Ives, senior equity analyst at Wedbush Securities, told CNN in an email. “Truth Social is a fraction of X and other social media platforms in terms of user numbers, but with the election just a week away, this stock has become a litmus test for the race for the White House for some investors.”

Matthew Tuttle, CEO of Tuttle Capital Management, blamed Wednesday's selloff on Trump Media's stock price failure to break through key upside resistance.

“It's the way the game is played with this stuff,” Tuttle told CNN. “The smarter traders know that you can make your money and get the hell out of it. And leave it to the non-smart traders to keep things in their hands.”

Tuttle pointed out that one of the factors contributing to Trump Media's rise was the fact that it was very expensive to borrow stocks to bet against it. He described “completely crazy” financing costs for borrowing shares.

“It makes it virtually impossible to short out this thing,” Tuttle said.