By now, most of us have already been invited or persuaded to invest in cryptocurrency. It could come from a conversation with a friend or on social media, as a growing number of celebrities and influencers with undoubtedly lucrative endorsement deals try to entice fans to invest. These typically take the form of an invitation to invest in their own crypto-assets (through the release of limited-edition NFTs) or an endorsement of an existing token or coin. But do such endorsements go too far? It would certainly be surprising for an influencer to promote a more traditional financial product on social media, but due to the massive accessibility of cryptocurrency and its position in popular culture, the position is slightly higher. nuanced.
Where does this trend come from?
Since the early 2010s, celebrities and influencers have been able to monetize their social media profiles and use the platforms for sponsored posts and product recommendations. It is rare that these advertisements relate to products of a financial nature; they were mainly focused on consumer and retail goods.
However, public interest in cryptocurrencies has increased in 2020-2021, driven by the arrival of NFTs and unprecedented increases in the value of Bitcoin, arguably the best-known cryptocurrency in the market. This led to an explosion of product recommendations from crypto-related celebrities and influencers, as companies involved in the industry aimed to capitalize on the popularity. Investments that were once known only to niche subsectors of the financial community have gained endorsements from celebrity-backed mainstream products. Some have argued that this is positive for the market and shows that cryptocurrencies are growing in popularity, while others suggest that these promotions are a dangerous incentive for financially unsophisticated consumers to invest in products that can be volatile. .
Kim Kardashian and the Ethereum Max promotion
Over the last year or so, the rate of promotion of new crypto tokens or cryptoassets by celebrities has skyrocketed. However, the personalities involved rarely make money themselves from the investment they are touting – instead they collect endorsement fees of up to hundreds of thousands of dollars.
A stark example is Kim Kardashian’s recent commercialization of the Ethereum Max token, a speculative digital token created a month prior by unknown developers, making it a high-risk investment compared to more traditional investments. In her Instagram post, she said “this is not financial advice but a sharing of what my friends just told me about the ethereum max tokenpreceding a video to further promote the coin. However, Kim’s only interest in the token was the $250,000 fee she received to promote it, something that was not stated at the time. As a result, she agreed with the Securities and Exchange Commission (SEC) in the US to pay a fine of $1.26m (£1.12m) and ban the promotion of crypto-assets for three years. year.
Similar action was taken by the SEC against boxer Floyd Mayweather and music producer DJ Khaled in 2018 over similar promotions for an undisclosed endorsement fee. In their cases, they promoted initial coin offerings (ICOs) for new cryptocurrencies. However, those fines were relatively small, totaling $750,000 between them.
A significant factor in the SEC’s decision that the above promotions were problematic was the perceived risk attached to new cryptocurrencies and tokens due to the fact that they had only just hit the market, were relatively unknown. and had been created by unknown developers.
How do regulators view these types of mentions?
Some have argued that global regulators should be bolder in their approach to paid promotions involving crypto-assets. For example, the United Kingdom has particularly strict financial regulations regarding the promotion of traditional forms of investment, but these do not apply to crypto-assets.
A consultation has now recommended that these regulations be extended, and it is up to the government to decide whether and in what form to incorporate these recommendations into legislation. Other regulators, such as in Australia, are under pressure to support tougher consumer protection laws to prevent consumers from accessing what many see as complex and volatile investments that can harm consumers.
However, at the moment there is no targeted regulation on celebrity endorsements for crypto-assets and it will be some time before global action is taken.
So, will we see more of these types of mentions?
As is evident with all social media trends, the phenomenon can explode or disappear altogether at any time. As a result, celebrity cryptocurrency mentions are likely to fluctuate based on consumer interest and investment discussions. However, the latest decisive action by the SEC against Kim Kardashian is likely to serve as a considerable warning to anyone considering accepting a tempting financial incentive to promote a particular cryptocurrency or asset. This, combined with the current “crypto ice age” (a sustained decline in the value of the cryptocurrency market) could cause these types of endorsements to drop temporarily.
Celebrities and influencers may also, in light of the sanctions imposed on Kim Kardashian, be particularly reluctant to accept endorsement deals when the relevant cryptocurrency or crypto-asset is particularly new to the market. It remains to be seen, however, whether the action of the SEC as well as the interventions of other global regulators will have a long-term chilling effect on (celebrity) cryptocurrency approvals in the future.