Did Kim Kardashian Just Change The Game For Crypto Investors?

Kim Kardashian may have influenced how cryptocurrencies will be treated by US regulators and lawmakers.

She just settled a crypto-related cease-and-desist order from the Securities and Exchange Commission (SEC), meaning Kardashian’s case won’t set a legal precedent. Only proceedings that actually go to court can do so. But the penalty fee of $1.26 million is big enough to turn their heads and change their minds. That could be enough to change the direction of future legal proceedings in the cryptocurrency space. Furthermore, the SEC complaint was based on a rather controversial idea that is of fundamental importance to the future of crypto trading and ownership.

Future crypto investors may look back on Kardashian’s settlement as a turning point in the quest for a solid legal framework around cryptocurrency assets. It can be both good and bad in the long run.

What was the problem?

Kardashian promoted a certain cryptocurrency on her ultra-popular Instagram account on June 13, 2021. The post highlighted a coin holder-friendly move from EthereumMax token, with a link to a promotional video that explained how investors could get hold of this cryptocurrency.

EthereumMax prices surged more than 60% higher on the day of this Instagram post. These quick gains faded over the next week and only continued down from there. EthereumMax is now worth less than 5% of what it was before the Kardashian event. Investors were left with a big bag of hot air. This self-described “cultural token” does not look like a serious investment today.

The SEC paid attention to EthereumMax’s sudden rise and its correlation to Kim Kardashian’s promotional post on Instagram. The agency also found that she had been paid for this potentially useful marketing promise, but also that neither the post nor the linked video mentioned this fact.

Here is the relevant section of the regulatory enforcement code cited in the SEC’s complaint, with emphasis added to the troublesome parts: “Any celebrity or other person who promotes a virtual token or coin that is a security must disclose the nature, scope and amount of compensation received in exchange for the Promotion. Failure to disclose this information is a violation of the anti-touting provisions of federal securities laws.”

Why is that language debatable?

The US legal system has yet to determine whether cryptocurrencies are securities (like a stock or bond), currencies (like the US dollar or euro), or somewhere in between. A major SEC complaint has been making its way through the courts since December 2020, alleging that Ripple executives raised $1.3 billion in “an unregistered, ongoing securities offering.”

In this case, the claimed security is the Ripple token, XRP (XRP 7.23%). The financial stakes are many orders of magnitude larger than Kardashian’s million-dollar settlement, but both complaints hinge on the idea that cryptocurrencies must follow the same rules as investment securities.

The Kardashian case may not set a legal precedent, but I think it’s safe to say that people considering actual regulations and precedent-setting lawsuits will have this nugget of information tucked away in their brains. Given Kim Kardashian’s massive media footprint, you’d have to live under a mossy rock not to hear about this showdown. Could it be the straw that breaks the crypto-regulatory donkey’s back? I don’t know, but nothing is impossible.

What’s Next for Kim Kardashian and Crypto Investing?

Kim Kardashian is sending a $250,000 check to the SEC as reimbursement for campaign fees, an additional $10,515 to cover interest accrued during the proceedings, and $1 million as a civil penalty. Furthermore, she is not allowed to take payment for publishing any crypto assets during the next three years. This limitation applies regardless of whether cryptocurrencies are determined to be securities or currencies in the interim.

Crypto investors should take note of this matter and continue to pay attention to the development of fixed rules for crypto trading. This process can go one of several ways:

• All cryptocurrencies are treated as securities, following the model used in the Kardashian case. The industry then has to adapt to a large number of additional restrictions, making cryptocurrencies comparable to stocks in many ways.
• Each crypto is managed as a fiat currency. There are still rules governing their movement across international borders, money laundering mitigations and other legal concerns, but this rulebook is much thinner than the securities version.
• Each digital asset is judged by a unique standard, which sorts them into different buckets of rules depending on what the cryptocurrencies actually do. For example, Bitcoin can be seen as a value management tool that belongs in the discussion of securities, while Ethereum can pass as a digital currency that should flow more freely between people and businesses – like the good old dollar.

I don’t know where US and international regulators will land on this scale, but I look forward to finding out. Even the most draconian regulations would be an improvement over the loose rules of thumb crypto investors work with today. Therefore, anything that moves the crypto industry closer to some sort of regulatory certainty should be hailed as a positive step.