Crypto Influencers: Are They Responsible for Promoting Obscure Scams?
May 18, 2023
The cryptocurrency market has welcomed a new breed of opinion leaders in the digital era: crypto influencers. These individuals have quickly risen to prominence, capitalizing on the burgeoning interest in cryptocurrencies. As charismatic figures with vast online followings, they wield considerable power in shaping market trends and investment decisions.
The crypto influencer’s role, however, is not without controversy. While some see them as crucial to the market’s dynamism, others contend they exploit their platforms, promoting obscure or fraudulent crypto projects. The lack of comprehensive regulation in crypto further exacerbates this issue’s complexity.
Between Endorsements and Misrepresentation
Crypto influencers operate primarily on social media platforms, where their engaging content and purported crypto expertise have garnered them millions of followers. They significantly influence their followers’ perspectives toward specific cryptocurrencies and Initial Coin Offerings (ICOs).
As a result, their followers, who often lack a deep understanding, might unwittingly invest in fraudulent schemes disguised as legitimate opportunities.
For example, the infamous BitConnect scam, one of the largest Ponzi schemes in the crypto market, had the backing of well-known influencers. The project promised high-yield returns through a purported “trading bot” and volatility software.
Navigating the Legal Maze
The legal framework surrounding crypto influencers’ liability in promoting potentially fraudulent projects remains unclear. Current legislation has struggled to keep pace with the rapid evolution of the crypto industry, leading to significant ambiguity.
The issue of crypto influencer liability revolves around whether an influencer’s crypto promotion can be classified as an “advertisement” under consumer protection laws. If so, the influencer could be held accountable for any misleading or deceptive conduct in their endorsement.
Recently, courts in various jurisdictions have explored how traditional securities laws could apply to cryptos. However, the decentralized nature of cryptocurrencies and jurisdictional differences create an intricate environment for legal enforcement.
In the US, for instance, the Securities and Exchange Commission (SEC) has begun to clamp down on celebrity influencers who promote ICOs without disclosing their compensation, treating such promotions as violations of anti-touting provisions in federal securities laws.
France has taken a proactive stance by proposing a ban on influencers promoting crypto products and projects. This proposal reflects the growing global trend towards tighter regulation of the crypto industry, especially concerning the role of influencers.
The French legislation seeks to regulate the promotion of financial products and services by influencers to curb the increasing number of crypto-related scams. This regulation essentially prohibits crypto influencer endorsements. Those who contravene could face a two-year prison sentence and a fine of $32,300.
The Road to a Regulated Future
The evolving perspective on crypto influencer liability underscores the need for more stringent laws. Advocates for stricter regulations argue that they are necessary to safeguard the public from fraudulent crypto schemes, while others call for clearer guidelines for influencers.
The objective is not to inhibit innovation or stymie the crypto industry’s growth. Instead, it aims to ensure that influencer endorsements are informed by diligent research rather than pure speculation.
This goal requires a multi-pronged approach, including regulatory measures, public education, and self-regulation within the crypto community.
Similarly, the US Federal Trade Commission (FTC) has provided guidelines on how influencers should disclose their relationships with brands and businesses, including those in the crypto industry.
Crypto Influencers Promoting Scams Under Scrutiny
In the high stakes of the crypto market, the line between endorsement and deception can become blurred.
The case of John McAfee, a renowned tech entrepreneur, and crypto influencer, illustrates this. McAfee faced charges from the SEC for allegedly promoting seven ICOs between 2017 and 2018 without disclosing that he was paid.
His actions underlined the potential for misuse of influence in the crypto space and highlighted the need for stringent regulation and enforcement.
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Another high-profile incident involved the YouTube personality and influencer, Jake Paul. He faced backlash for illegally touting cryptocurrencies “TRX and/or BTT” without disclosing he was being paid to do so.
“Although the celebrities were paid to promote TRX and BTT, their touts on social media did not disclose that they had been paid or the amounts of their payments. Thus, the public was misled into believing that these celebrities had unbiased interest in TRX and BTT, and were not merely paid spokespersons,” the SEC wrote in the filing.
This isn’t Paul’s first time encountering controversy regarding his cryptocurrency ventures. A lawsuit filed in February accused him of involvement in a pump-and-dump scheme orchestrated by SafeMoon.
His brother, Logan, has similarly drawn attention due to his unsuccessful NFT endeavor, CryptoZoo.
The Crucial Balance in Crypto Promotions
The debate over the liability of crypto influencers in promoting unknown scams is far from settled. As the crypto industry evolves, a clear regulatory framework that balances consumer protection and innovation potential becomes increasingly urgent.
Crypto influencers, as key players in this ecosystem, are responsible for promoting only well-researched and credible crypto projects. This calls for a more transparent and accountable approach to endorsements. The industry must move away from reckless promotion and towards a more educated, informed stance.
Regulators worldwide must improve their efforts to define and enforce guidelines that deter deceptive practices in crypto promotions. At the same time, consumers must take the initiative to educate themselves about the risks and rewards of crypto investments.
The future of the crypto industry hinges on these collective efforts. It depends on fostering a culture of transparency, accountability, and integrity within the crypto community – from influencers and regulators to individual investors.
With these measures in place, the industry can navigate the pitfalls of crypto influencers promoting scams and fraud, ensuring a more secure and prosperous future for all stakeholders.
However, when BitConnect collapsed, it left investors with significant losses, raising questions about influencers’ responsibility in promoting such ventures.
