Cryptocurrencies have become one of the most popular new investments. And, although they can be a volatile asset, some coins have long-term potential and may deserve a place in your portfolio. Unfortunately, a troubling new study shows many people may be choosing what coins to invest in for the wrong reasons. And this could be a costly mistake.
Almost half of Americans would make an investment decision on this basis
According to a study of 2,200 U.S. adults conducted by Morning Consult, a whopping 45% of current cryptocurrency owners indicated that they would follow the advice of either a celebrity or an influencer about which coins to purchase.
The study was conducted following Kim Kardashian promoting a currency called EthereumMax (EMAX) on her Instagram account. The study revealed that 31% of crypto users indicated they had seen the post, and 19% had invested in EthereumMax. However, the Kardashian post also led to a five-point reduction in trust in cryptocurrencies in general, so the specific consequences of a celebrity endorsement may be mixed.
Why you shouldn’t invest based on celebrities or influencers
The reality is, the 45% of cryptocurrency owners who are taking the advice of celebrities or influencers are taking a huge risk by allowing this type of publicity to influence their investment decisions.
Investors who follow a celebrity on social media don’t necessarily know the underlying motivations of the influencers when they mention a particular coin. It’s possible that they may be promoting particular cryptocurrencies for the wrong reasons, such as their own enrichment rather than the best interests of their followers. Furthermore, there’s no way to know if a particular celebrity or influencer has considered the fundamentals of the coins or their long-term potential when making their endorsements.
When a celebrity or influencer tweets or posts about a cryptocurrency on other media platforms, this publicity does nothing to change the fundamentals of the coin itself. It doesn’t change whether the cryptocurrency is viable over the long term; whether merchants will come to accept it; or whether the technology it’s based on is sound. As a result, if the price increases, it’s because of the hype rather than because there’s suddenly more underlying value inherent in the coins.
Unfortunately, celebrities and influencers are constantly producing content because that’s how they make their money and keep their audiences engaged. They’re likely to quickly move on to other things and the hype surrounding the cryptocurrency they promoted will fade away — which could send the price of the coins falling.
Rather than basing investing decisions on what famous people are doing, investors should be carefully researching any assets they’re considering purchasing — including cryptocurrencies. They should look at the technologies they are built on, their performance history, and their long-term prospects before making an investment.
Cryptocurrencies are inherently risky because the prices can be volatile and because they are a newer asset class subject to limited regulations and without a long track record. With any risky investment, doing due diligence is even more essential — and following the advice of celebrities is not the way to do that.