Love or hate them, influencers are as inseparable from crypto as blockchain itself. While it’s hard to imagine a crypto space without social media inf
Love or hate them, influencers are as inseparable from crypto as blockchain itself. While it’s hard to imagine a crypto space without social media influencers, they sometimes act unethically by promoting dubious tokens and profiteering at the expense of ordinary investors. Such practices are a matter of concern — not only to the crypto community members who trust them but also to regulators.
While the United States Securities and Exchange Commission and Federal Trade Commission have fined celebrities, including Kim Kardashian, for failing to disclose their compensation for endorsing certain cryptocurrencies, most cases go unpunished. This lack of oversight deleteriously affects ordinary users.
Influencers for hire
Consumer trust in influencers has reached unprecedented levels. One survey by Fool indicated that 91% of Gen Z respondents consider social media their primary source of investing information. Followers copy bloggers, buy what they recommend and follow their financial advice. This widespread practice is acceptable as long as it is accompanied by a transparent endorsement that highlights the influencer’s financial interest in a product.
Related: Bitget and crypto influencer embroiled in legal saga after Reel Star token listing fiasco
In February, the SEC charged former NBA player Paul Pierce with promoting low-cap tokens to his followers without proper disclosure, resulting in financial losses for the public, with Pierce ultimately settling and paying $1.4 million. Similar investigations accused boxer Floyd Mayweather Jr. and music producer DJ Khaled of failing to disclose promotional payments from initial coin offerings, with the latter enthusiastically endorsing one of the projects as a “game changer.” In 2017, Paris Hilton endorsed the alleged scam project LydianCoin without a proper disclaimer, and even used the counter hashtag #ThisIsNotAnAd. Yet another substantial fine was the $1.26 million penalty imposed on Kim Kardashian, whom the SEC accused of failing to transparently reveal her financial stake when she endorsed the EthereumMax (EMAX) token.
Since Kim Kardashian shilled EthereumMax in June 2021, its value has plummeted by 95%. According to the SEC, she pocketed a $250,000 fee for her endorsement.
Our crackdown on a ReelStar influencer
There’s a clear pattern involving influencers shilling projects while failing to be transparent about their stake in them. ReelStar is another case in point. One of its endorsers, a cryptocurrency influencer, neglected to transparently communicate with his followers that he had received a substantial commission of 7.5 million tokens from the project he later endorsed. Once it was listed on exchanges — including Bitget — he commenced selling REELT tokens after stating that he was bullish on the project and expected to see it go “to the moon.” This coincided with a 60% plummet in the token’s value — and many ordinary users left holding the costs. Today, the asset rests approximately 95% below its initial price.
We are delighted to have @EvanLuthra on board as we innovate in the #Web3 space and build the next generation “everything” app!
Just wait and see what we have coming! You wont want to miss this! #ReelToken #ReelTokenGlobal #ReelT #ReelStar #ReelPay #ReelPayGlobal pic.twitter.com/IjQpnrL1gR
— ReelToken (@Reel_Token) December 4, 2022
The episode, while by no means isolated, has provided an invaluable lesson for the industry that can be summarized as Know Your Influencer. Should a project or an exchange become aware of dubious schemes, they should swerve to prevent history from repeating.
As a result of this ordeal, Bitget covered more than $540,000 in losses that 583 of its users suffered from REELT’s declining price. The ReelStar adviser, on the other hand, failed to accept any accountability, instead shifting responsibility to other parties, pretending to be a victim and continuing to mislead his community.
It’s important to clarify what constitutes ethical and unethical behavior. If an influencer owns a large amount of a new cryptocurrency, participates in its promotion, and sells it off at the first opportunity, without waiting for project development or a price increase, are they acting honestly? No. If other retail investors are aware of this, will they buy this cryptocurrency? Most likely not.
Insider trading and market manipulation are by no means isolated to social media influencers: Company executives, advisers and partners can be just as guilty. Elon Musk’s tweets are the most famous example of how a few words can spike or plummet a token. His long-standing support of Dogecoin (DOGE) coincided with a rise in its price of 36,000% over two years before it crashed. Celebrity-driven pump-and-dumps aren’t just a question of fiduciary responsibility but also a matter of ethics — there’s what’s legally wrong and what’s morally wrong.
Ethics on the crypto playground
People trade on Bitget to buy project tokens whose…
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