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Crypto Influencers: Are They Responsible for Promoting Obscure Scams?

4 mins
Updated by Michael Washburn
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In Brief

  • Crypto influencers are pivotal figures in the digital currency sphere, but their promotion of potentially fraudulent projects is a subject of controversy.
  • The legal landscape surrounding crypto influencer liability is complex, with courts and regulators struggling to adapt laws to the crypto context.
  • The future of the crypto industry calls for a balance between consumer protection and innovation, with stricter regulations and self-governance.
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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).

The unregulated crypto market allows these influencers to endorse crypto projects without performing comprehensive due diligence.

As a result, their followers, who often lack a deep understanding, might unwittingly invest in fraudulent schemes disguised as legitimate opportunities.

Crypto Influencers Promoting Scams
Biggest Crypto Scams. Source: Statista

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.

However, when BitConnect collapsed, it left investors with significant losses, raising questions about influencers’ responsibility in promoting such ventures.

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.

Crypto Regulation Worldwide
Crypto Regulation Worldwide. Source: Statista

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.

For instance, the UK’s Financial Conduct Authority (FCA) has warned consumers about the risks of investments advertised by influencers, indicating a move towards a more informed and cautious investor approach.

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.

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.

Top crypto projects in the US | June 2024

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Disclaimer

Following the Trust Project guidelines, this feature article presents opinions and perspectives from industry experts or individuals. BeInCrypto is dedicated to transparent reporting, but the views expressed in this article do not necessarily reflect those of BeInCrypto or its staff. Readers should verify information independently and consult with a professional before making decisions based on this content. Please note that our Terms and ConditionsPrivacy Policy, and Disclaimers have been updated.

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Bary Rahma
Bary Rahma is a talented journalist who graduated from New York University with a degree in Journalism. In her extensive career, she has worked for renowned media outlets such as CNN, showcasing her investigative skills and storytelling abilities. Currently, Bary contributes her expertise to BeInCrypto, where she crafts insightful articles on the dynamic crypto industry. In addition to her work at BeInCrypto, she has contributed her expertise as a content writer for Binance, creating...
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