The silence of influencers in a fast-deflating cryptosphere

There aren’t many silver linings to the cryptocurrency crash. People have lost money, even those who could least afford it. But one welcome casualty is the army of social media ‘influencers’, toxic promoters in what must surely rank as the one of the most egregious product-placement manias in financial history. What comes next should be a focus on investor protection in an age of digital investing.

At the wave’s peak, the basic identifier of laser eyes was optimism that Bitcoin was headed for $100,000 and beyond, and these influencers included US Congress members, billionaires, sports stars and hordes of rank-and-file crypto enthusiasts.

The lasers aren’t shining so brightly after the latest rout in the cryptosphere, with some going completely dark, presumably in an effort at reputational damage control. The Winklevoss twins are busy promoting their next act as musicians in a cover band called Mars Junction; Elon Musk is insisting he never told anyone to buy crypto. And celebrities who once flaunted their non-fungible tokens have taken them down.

The real changes will be lower down the speculative food chain, as the fuel runs out for viral economic narratives promoting crypto trading among the impressionable folks eager to get rich quicker than the rest.

The business model of influencers is to take real money in exchange for promoting virtual cash. At one point, YouTubers were being offered $30,000 to promote crypto-linked investments. But money is drying up as trading on exchanges diminishes and startup funding disappears. Even Coinbase Global, with a market capitalization of more than $12 billion, has slashed affiliate marketing fees. Influencers who just months ago were making $40 for each new sign-up to the platform are now being offered $2 to $3.

American celebrities such as Matt Damon and Larry David deserve the mud slung at them for promotional ads, but at least their affiliations were clear. Not all social media personalities are scammers. But those with less transparent ties to the products they were promoting—such as YouTuber Logan Paul, a cheerleader to 23 million followers for collapsed token Dink Doink, a project that he told The New York Times in May went “absurdly wrong”—are clearly eroding the trust of followers in general.

And as the ignorance of some crypto shills filters through to their fans, who will surely tire of the constant claims that crypto is an ‘inflation hedge’ when it’s anything but, more regulatory intervention as well as voluntary crackdowns by TikTok and other social media platforms are likely. Some reality TV stars’ accounts have been shuttered, with Snapchat suspending Jazz and Laurent Correia last year.

This isn’t about censorship, but transparency. Jackson Palmer, co-creator of Dogecoin, has an umbrella term to describe our world: Griftonomics. Applying it to crypto, he says, reveals a network of “bought influencers.” A study by the Dutch financial markets regulator of 150 influencers covering more than 1 million followers found that only a tiny fraction—around 1%—weren’t making money from affiliated projects.

The authorities have a role to play in cleaning up the worst excesses. Advertising overseers in the UK and France have done a decent job in halting misleading ad campaigns. Kim Kardashian and Floyd Mayweather were both sued in January, accused of hyping a digital token called EthereumMax for investors. Mayweather had already been fined by the US Securities and Exchange Commission in 2018 for touting coins without disclosing a financial interest, while last year Kardashian was admonished by the UK Financial Conduct Authority for using her fanbase to promote “a speculative digital token created a month before by unknown developers.”

But there’s a need for more financial and digital literacy too. Young folks are saddled with debts at an early age and feel the pressure acutely. There’s also this feeling that wealth is accumulated by being lucky—born in the right generation or to the right family, or by backing the right token— rather than through one’s merit. That helps explain why buy-now-pay-later loans have flourished among those who struggled to repay them and why a high proportion of people follow and listen to influencers.

There’s a role here for parents and educators, and maybe even apps with guard rails to allow for experimental spending with small amounts of cash. And it should also be possible for regulators to fight fire with fire: misleading economic narratives about inflation hedges could be countered by properly qualified market influencers, as with other forms of misinformation.

But for now, people with laser eyes on their online profile photos have unwittingly slapped an obvious health warning on their content. If you happen to see those two red dots, steer clear.

Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France.

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