Crypto entrepreneurs hire influencers to push up the value of their digital currencies, hoping to ignite the sort of online hype that briefly turned Dogecoin, a joke currency based on a meme, into one of the most valuable crypto investments.
Some promoters are not well known outside crypto circles but have large followings on social media, where they broadcast market tips, interspersed with sponsored content. Others are major celebrities like Kardashian, who is facing a lawsuit from investors over her marketing of an obscure cryptocurrency called EthereumMax.
Celebrity influencers like Kim Kardashian have made millions of dollars endorsing specific and often dubious crypto investments, urging fans to buy obscure coins that quickly crashed in value.Credit:Hunter Abrams/The New York Times
The amounts paid to crypto promoters can be astronomical. An NFT project called Hive Investments has been recruiting influencers, offering payments as large as $US400,000 ($556,000), according to a presentation reviewed by The New York Times.
Jordan Belfort, the former stockbroker whose memoir inspired the 2013 movie The Wolf of Wall Street, was once offered $US250,000 to change his Twitter profile picture to an NFT. Belfort, who recently rebranded himself as a crypto guru, turned down the offer.
“We don’t want to be a part of things that basically exist purely to separate people from their money,” said Matt Hirschberg, Belfort’s business partner. “I’ve had people offer us guarantees of up to at least $US10 million just to get involved.”
Crypto promotion occupies a legal gray area. Under federal law, people marketing securities are required to publicly disclose payments for promotions. In 2018, Mayweather paid more than $US600,000 to settle SEC charges that he had failed to properly disclose his compensation for marketing initial coin offerings, the crypto equivalent of an initial public offering on Wall Street. But the rule he broke applies only to securities, like stock in a company, and it is unclear which crypto products meet that legal standard.
“You have this shameless profiteering from celebrities and others, who aren’t at all disinterested or impartial. There is a lot of potential for harm.”
John Reed Stark, a former chief of the internet enforcement branch at the Securities and Exchange Commission.
Crypto promoters could also run afoul of the Federal Trade Commission’s rules, which require marketers of all kinds to disclose when they have a financial stake in the projects they endorse.
“Companies and the social media influencers of the world view this as the Wild West,” said David Klein, a lawyer in New York who specialises in marketing rules. “The old-world laws still apply, and you have to follow the guidelines. Otherwise, the regulators will come calling.”
Even celebrities who disclose crypto payments have found themselves in legal trouble. Last summer, Kardashian endorsed EthereumMax in an Instagram post with a brief disclaimer at the bottom: “#ad.” Few crypto insiders had heard of EthereumMax, which is different from Ethereum, one of the most popular crypto platforms.
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The promotion led to a surge of trading, but EthereumMax’s price soon collapsed. This year, nine traders who had bought EthereumMax sued Kardashian, the project’s founders and other promoters, including Mayweather and former basketball star Paul Pierce, accusing them of disguising their control over EthereumMax tokens and circulating “misleading” advertisements.
According to the lawsuit, Pierce received more than 15 trillion EthereumMax tokens in exchange for tweets endorsing the coin. None of the tweets excerpted in the lawsuit mentioned a business relationship with the token’s creators. Shortly after promoting the project, the lawsuit claimed, Pierce sold his tokens — an apparent “pump and dump” operation in which he profited by encouraging fans to buy the tokens, before selling his own holdings at a higher price.
A lawyer for Kardashian said the suit’s allegations “lack merit.” Mayweather, Pierce and the project’s founders did not respond to requests for comment.
As crypto prices have crashed, investors have also turned on lower-profile influencers who post sponsored content on social media. Ben Armstrong, a crypto influencer with almost 1 million Twitter followers, runs a YouTube channel where he discusses market trends and talks up his favourite projects. He used to charge startup founders $US40,000 for a YouTube interview, but discontinued the service this year after his price sheet was posted publicly by an influential crypto sleuth.
Jordan Belfort, the “Wolf of Wall Street” has rebranded himself as a crypto expert.Credit:Scott McIntyre/The New York Times
Some of the projects that Armstrong promoted were small-time, experimental crypto ventures that eventually encountered problems. In those cases, he said, he considered himself a victim, too.
“They’re preying on the novice crypto influencer who just got popular and is trying to figure out what they should and shouldn’t be doing,” he said. “It’s hard to go from 12,000 followers to a million in one year and make all the right decisions.”
Not long after Dink Doink’s crash, Paul started an NFT collection called CryptoZoo, which was widely mocked for featuring stock images of animals. Paul blamed the staff who helped run the project for CryptoZoo’s problems. Now, he’s working with a new team on a crypto venture called Liquid Marketplace, which uses blockchain technology to let investors buy fractions of physical objects.
The recent crypto crash “will definitely weed out the weak,” Paul said. But he added that it had also made him rethink some of his promotions, after he personally lost $US750,000.
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“I don’t want anyone to feel like they’ve been screwed because of any sort of move they’ve made because of me,” he said.
This article originally appeared in The New York Times.
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