With bitcoin back at a record high, the search for information is also on, as new investors seek guidance on where to place their bets. As we enter the last quarter of 2021, some crypto investors are pacing themselves for what they believe will be a parabolic bull run.
Unfortunately, beginners can fall prey to content creators who have mastered the art of hype and FOMO investing. There’s no end to the number of influencers across social-media platforms promoting cryptocurrencies they say will perform well. And while some content creators have a genuine desire to educate, others might have a self-invested interest — and could even land under the scrutiny of regulators.
But good advice is hard to come by in a sector that’s new and mostly unregulated.
Hyping a crypto is popularly known as “shilling.” And what investors need to know is that sometimes, content creators are compensated for selling you on the idea of buying a crypto.
As for what influencers need to know, if you’ve been compensated in any way, the lines between what’s considered legal and not can become very blurry, according to legal experts.
That might come as a surprise because even well-known celebrities have advocated for a variety of tokens. Charli D’Amelio, Jake Paul, and Jimmy Donaldson all promoted safemoon, while Kim Kardashian, Floyd Mayweather, and Paul Pierce have publicly supported the ethereum max token.
In June, Kardashian posted an Instagram story to her 228 million followers at the time saying she had a “big announcement” about ethereum max. She then displayed a static page notifying viewers that 400 trillion tokens had been burned from the admin wallet so that the “community” held the majority of the tokens. The post was short and bizarre.
Attorneys familiar with the regulatory framework see this all the time. Lisa Braganca, a former Securities and Exchange Commission branch chief turned SEC investigations and litigation lawyer at Braganca Law, said Kardashian probably didn’t get good legal advice.
Vitalik Buterin, the founder of ethereum, recently expressed his disdain for Kardashian’s Instagram post, referring to the crypto as a “borderline scam” and a pure “money grab” in a recent interview with Bloomberg.
“I was shocked when I looked and just saw ‘#Ad’ and then saw commentary about, ‘Oh, well, this complies with the Federal Trade Commission’s law.’ Well, yes, but you forgot about the Securities and Exchange Act. So that’s a big miss,” Braganca said. The FTC protects consumers against unfair, deceptive, or fraudulent practices, while the SEC regulates securities markets and protects investors.
The laws that govern cryptocurrencies could fall under the jurisdiction of more than one entity. They remain muddy, and that’s why it’s easy for even A-list celebrities to stumble. For example, some coins or tokens could be seen as a utility or decentralized asset rather than a security.
The confusion could have stemmed from a statement made by William Hinman, the director of the division of corporate finance for the SEC, who said that bitcoin and ether, in particular, were not securities due to their decentralized structures.
But that doesn’t mean other cryptocurrencies will fall under the same category. In fact, they probably won’t. Braganca said just because an entity with an interest in promoting a token might benefit from its promotion doesn’t mean it’s decentralized. And once you get into the SEC’s territory, the charges for engaging in this type of promotion can be a laundry list, Braganca said.
“There is no Mr. Bitcoin out there who is paying people to promote bitcoin. There used to be the Ethereum Foundation that was putting out ethereum, but now there isn’t; there’s just a bunch of ethereum out there,” Braganca said. “And I think that’s where people get confused.”
Danielle Dudai, an attorney who covers cryptocurrency regulations as part of her practice, added that the rules that govern securities will most likely apply to crypto assets because they are considered securities until proved otherwise.
The pitfalls and consequences
This means promoting any kind of crypto could have some serious consequences, especially if the promoter doesn’t properly and publicly disclose details about their compensation every time they post.
In 2018, the SEC charged Mayweather, a professional boxer, and the music producer DJ Khaled, with failing to disclose payments they received for promoting initial coin offerings.
While the SEC hasn’t made headlines for widespread crackdowns on celebrities and influencers, it doesn’t mean the regulators aren’t keeping a watch, and maybe even a file, Dudai said.
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