The Dubious Role of Influencers in the Cryptocurrency Market

The influence of social media influencers on the cryptocurrency market is being watched with great concern. The reason is very simple, multiple studies and surveys indicated that the majority of cryptocurrency investors were relatively young, typically falling within the age range of 18 to 40 years old. These younger individuals often have a higher risk tolerance, making them more open to investing in the crypto market, and lots fall for the smart talk of influencers so it seems. In various lawsuits, such as the one against influencers promoting FTX, claims have reached over $1 billion.

Be Very Cautious with Advice from Influencers

When considering financial advice from influencers you should think twice. We list several reasons why not to believe to quickly what an influencer tells you to do with your hard earned money:

Lack of Financial Expertise: Many influencers are not financial experts or advisors. They may not have the necessary education, experience, or understanding of financial markets to provide sound investment advice.
Conflicts of Interest: Influencers might have financial incentives to promote certain products or investments. These promotions may not always be in the best interest of their followers but rather serve the influencer’s financial gain.
One-Size-Fits-All Advice: Financial advice should be tailored to individual circumstances, including risk tolerance, investment goals, and financial situation. Influencers often provide generalized advice that might not suit everyone.
Lack of Accountability: Influencers are typically not regulated or held to the same standards as licensed financial professionals. This means they are not legally accountable for the financial advice they dispense.
Emotional and Sensational Content: Influencers often use persuasive and emotive language to engage their audience. Such content may lack factual accuracy and can be designed more for entertainment or engagement than for providing sound financial advice.
Promotion of Risky or Unverified Investments: Influencers may promote high-risk or unverified investment opportunities, like certain cryptocurrencies or speculative stocks, without adequately addressing the risks involved.
Misinformation and Bias: Some influencers may spread misinformation, either intentionally or due to their own lack of understanding. Their advice might also be biased towards certain products or services due to personal beliefs or financial incentives.
No Personalized Guidance: Unlike a financial advisor who understands your personal financial situation, influencers provide advice without knowing your specific financial goals or needs.
Rapidly Changing Market Conditions: Financial markets can change rapidly, and advice that might have been relevant when an influencer created their content can quickly become outdated.
Regulatory Compliance: Financial advice is subject to regulatory compliance, which influencers may not always adhere to, potentially leading followers to engage in unlawful or risky financial activities.

For these reasons alone we advise you to stay away from influencers and consult with a qualified financial professional for personalized advice. And most of all, always conduct your own research before making investment decisions.

The Spreading of ‘Freedom Porn’ by Influencers

One major issue is the dissemination of misinformation or overly optimistic views about cryptocurrencies. Some influencers spread “freedom porn”, creating unrealistic expectations and leading to misinformed investment decisions. This is particularly concerning when influencers are driven by personal biases or undisclosed financial interests, often promoting questionable or scam projects for financial gain.

Their comments, whether positive or negative, can have a cascading effect on the market, influencing purchasing or selling decisions and driving short-term price changes. This can and will often lead to market manipulation risks, especially when influencers are involved in token endorsements or initial coin offerings (ICOs), potentially artificially inflating the market demand and value of certain tokens.

Research has indicated that the engagement rates of influencers’ accounts, particularly those with 50,000 to 100,000 followers, can significantly impact crypto prices. The correlation between the number of tweets about a cryptocurrency and its price movements shows the clear influence these social media figures can wield over market dynamics.

Cheating Influencers

There have been several notable cases where influencers have abused their popularity to sell dubious crypto products or influence the market, often leading to significant consequences for investors. One of the most infamous examples is the BitConnect scam, a large Ponzi scheme in the crypto market, which was promoted by well-known influencers. This scheme promised high-yield returns through a supposed “trading bot” and volatility software but eventually collapsed, causing significant losses to investors.

Celebrities like Lindsay Lohan, Soulja Boy, and Jake Paul have been involved in promoting cryptocurrencies without disclosing their compensation. Let’s go over the long list of misfits in the influencer’s world. Lindsay Lohan failed to disclose the $10,000 she received for a tweet from the Tron Foundation, owned by Justin Sun. Similar to Lohan, Soulja Boy was involved in promoting TRX without disclosing compensation. Jake Paul was among the eight influencers who settled SEC complaints without admitting wrongdoing for promoting TRX and faced backlash for touting cryptocurrencies without proper disclosures. Kim Kardashian paid $1.26 million to settle a case where she was accused of promoting crypto investments without disclosing her compensation. TraderNJ and PetaByte were involved in crypto scam projects involving tokens like BabyShib and CBOT. Graham Stephan was mentioned as a respondent in the $1 billion lawsuit against YouTube influencers for promoting FTX. Logan Paul drew attention due to his involvement in an unsuccessful NFT endeavor, CryptoZoo. Ryan Green (A.K.A Raichu) was identified as a middleman in crypto scams involving celebrity and influencer promotions. Tech entrepreneur John McAfee faced charges from the SEC for promoting several ICOs without disclosing that he was paid, highlighting the potential misuse of influence in the crypto space. Bitboy Crypto (Ben Armstrong) was named in a $1 billion lawsuit for endorsing unregistered securities. And the list goes on and on.

The SEC Fights Back

Fortunately the SEC has been actively bringing enforcement actions against influencers who engage in illegal activities related to crypto promotion. This includes charging influencers with fraud or misrepresentation, especially when they fail to disclose compensation received for promoting cryptocurrencies or ICOs.

Influencers found violating SEC regulations will face substantial fines as they serve as a deterrent to influencers considering similar practices. The SEC also issued public statements and guidance to educate both influencers and the general public about the legal responsibilities associated with promoting financial products, including cryptocurrencies. Additionally the SEC provides specific guidelines on how influencers should disclose their relationships with the crypto projects they are promoting. These guidelines require clear and conspicuous disclosure of any material connections between the influencer and the endorsed product or service.

Ongoing investigations and monitoring of social media platforms are conducted to identify and address potential fraudulent activities by influencers.