By now most of us have had some experience of being invited or persuaded to invest in cryptocurrency. This can be done by chatting with a friend or on social media as more celebrities and influencers with undoubtedly lucrative endorsement deals try to entice fans to invest. The latter usually takes the form of an invitation to invest in their own cryptoassets (through the release of limited edition NFTs) or a confirmation of an existing token or coin. But do such comments go too far? It would certainly be surprising for an influencer to promote a more traditional financial product via social media, but given cryptocurrency’s mass accessibility and position in popular culture, the position is a bit more 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 endorsements. Rarely would these ads ever be for products that are financial in nature; They were largely focused on consumer and retail goods.
However, public interest in cryptocurrencies surged in 2020-2021, fueled by the launch of NFTs and unprecedented increases in the value of Bitcoin, arguably the market’s best-known cryptocurrency. This led to an explosion in crypto-related celebrity and influencer product endorsements as companies operating in the industry aimed to capitalize on the popularity. Investments once known only to niche subs of the financial world gained mainstream product endorsements backed by celebrities. Some have argued this is positive for the market and shows that cryptocurrencies are gaining traction, while others suggest these promotions are a dangerous lure for financially inexperienced consumers to invest in potentially volatile products.
Kim Kardashian and the Ethereum Max promotion
In the last year or so, the rate of endorsement of new crypto tokens or crypto assets by celebrities has skyrocketed. However, the personalities involved rarely make money themselves from the investment they are promoting – instead they collect advertising fees that can run into hundreds of thousands of dollars.
A prominent example is Kim Kardashian’s recent listing of the Ethereum Max token, a speculative digital token created a month earlier by unknown developers – making it a high-risk investment compared to more traditional investments. In her Instagram Story post, she said: “This is not financial advice but sharing what my friends just told me about the Ethereum Max token‘ before a video further promoting the coin. However, Kim’s only interest in the token was the $250,000 fee she was paid to apply, which was not explained at the time. As a result, it agreed with the Securities and Exchange Commission (SEC) in the US to pay a $1.26 million (£1.12 million) fine and a three-year ban on cryptoasset mining.
Similar action was taken by the SEC against boxer Floyd Mayweather and music producer DJ Khaled in 2018 for similar promotions of undisclosed endorsement fees. In their cases, they promoted Initial Coin Offerings (ICOs) for new cryptocurrencies. However, these fines were comparatively small, totaling $750,000.
A key factor in the SEC’s decision that the above promotions were problematic was the perceived risk associated with new cryptocurrencies and tokens given that they were new to the market, relatively unknown, and created by unknown developers .
How do regulators view these types of endorsements?
Some have argued that global regulators should be bolder in their approach to paid cryptoasset promotions. For example, the UK has particularly strict financial regulations to encourage traditional forms of investing, but these do not apply to crypto assets.
A consultation has now recommended expanding these regulations, and it is up to the government to decide whether and in what form these recommendations are included in the 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, there is currently no targeted regulation of celebrity endorsements of crypto assets, and it will take time for action to be taken globally.
So will we see more of these types of endorsements?
As with all social media trends, it’s clear that the phenomenon could explode or disappear altogether at any time. As such, it is likely that prominent cryptocurrency endorsements will fluctuate in line with consumer interest and investment discussion. However, the SEC’s recent turn against Kim Kardashian should serve as a significant warning to anyone else considering accepting an enticing financial incentive to promote a particular cryptocurrency or asset. Combined with the current “crypto freeze” (an ongoing decline in the value of the cryptocurrency market), this could result in a temporary drop in these types of notations.
Celebrities and influencers may also be particularly reluctant to accept promotional offers given the sanctions imposed on Kim Kardashian when the cryptocurrency or cryptoasset in question is particularly new to the market. However, it remains to be seen whether the actions of the SEC, along with interventions by other global regulators, will have a long-term chilling effect on (prominent) cryptocurrency advocates going forward.